Glanbia FY 2020 results

Glanbia FY 2020 results

Navigated Covid-19 well in 2020, positioned for growth in 2021

 

24 February 2021 - Glanbia plc ("Glanbia", the "Group", the "Company", the "plc"), the global nutrition group, announces its preliminary results for the 2020 financial year ended 2 January 2021 ("Full year 2020", "FY 2020", "2020").  

 

Summary

·     Group navigated Covid-19 well with the business portfolio delivering a resilient performance in 2020;

·     Solid top line with revenue of €3,823.1 million (2019: €3,875.7 million), up 0.6% constant currency on prior year (down 1.4% reported). Like-for-like* revenue grew 1.8% constant currency on prior year;

·      Strong operating cash flow ("OCF") of €334.8 million (2019 €279.9 million); 122.4% cash conversion rate;

·      Robust performance from Glanbia Nutritionals ("GN") which drove like-for-like revenue growth of 10.0% constant currency on prior year;

·      Glanbia Performance Nutrition ("GPN") impacted by Covid-19 restrictions, in particular in Q2, delivered like-for-like revenue decline of 13.3%, constant currency;

·       Pre-exceptional EBITA of €209.6 million in full year 2020 (FY 2019: €276.8 million) was down 22.6% constant currency (down 24.3% reported); primarily related to challenges associated with Covid-19 in GPN in Q2; improving trends resulted in delivery of €124.6 million EBITA in the second half 2020;

·      Joint Ventures ("JVs") delivered a strong performance with reported share of profits up €13.0 million to €61.6 million;

·      Adjusted earnings per share ("EPS") of 73.78 cent (2019: 88.10 cent) was down 14.9% constant currency (down 16.3% reported); 

·      Profit after tax of €143.8 million (2019: €180.2 million); exceptional items after tax of €31.5 million (2019: €34.6 million);

·      Basic EPS of 48.72 cent (2019: 61.04 cent);

·      Group in a strong financial position with net debt reduced by €120.4 million versus prior year to €493.9 million; Net debt to adjusted EBITDA ratio of 1.70 times;

·      Share buyback programme of up to €50 million successfully launched in Q4 2020 and ongoing in 2021;

·      Total dividend maintained at 2019 levels representing a payout ratio of 36.1% ahead of target range of 25% to 35% due to strong cash flow. Recommended final dividend per share of 15.94 cent, total 2020 dividend 26.62 cent;

·      Strong progress on the Group's ESG agenda; Significant changes to Board composition proposed to facilitate increased Board diversity with a Group-wide Diversity and Inclusion strategy launched; and on the Environmental agenda, targets are now in place for the reduction of carbon emissions;

·      Positive outlook; in FY 2021 the Group expects to deliver 6% to 12% growth in adjusted EPS, constant currency, driven by wholly-owned businesses, GPN and GN.

 

Commenting today Siobhán Talbot, Group Managing Director, said:

"I am exceptionally proud of how our people responded to the many challenges of Covid-19. Throughout the pandemic, we lived our purpose and our values, delivering essential, nutritious food during the most challenging of circumstances and proving the resilience of our business. We delivered on our priorities of protecting our people, continuing the supply of food and maintaining our strong financial position. We kept our operations running safely with the aid of enhanced health and safety measures. Our business portfolio delivered a robust operating performance supported by our swift and decisive actions which resulted in improving trends across the Group in the second half of the year. Our focused approach to liquidity resulted in cash conversion of over 122% and our financial position has improved materially with net debt reducing by over €120 million during the course of 2020.

 

We also maintained delivery of our strategic agenda by making significant progress on GPN's transformation programme; keeping all major projects on track, which included the completion of construction of two new large-scale JV plants; completing the Foodarom acquisition in GN; and launching a €50 million share buyback programme to enhance shareholder returns whilst maintaining our dividend level. This pandemic is by no means over and we remain vigilant in managing the risks associated with it but we are confident that earnings growth will be restored in 2021.

 

In 2020 like-for-like wholly-owned revenues grew by 1.8%, on a constant currency basis. GN delivered a good performance versus prior year as the majority of its end-market demand was sustained throughout 2020 and it continued to execute its strategic growth agenda. GPN was impacted by Covid-19 related restrictions which caused significant disruption to International markets and the North American specialty and distributor channels. However we maintained our focus on the key transformation programme with revenue and margin trends both improving in the second half of the year. Our full year adjusted EPS was down 14.9% on a constant currency basis versus prior year as a good start to 2020 was severely impacted by Covid-19 in the second quarter but improved market conditions and focused actions drove a sequential improvement in earnings in the second half of 2020.

 

Today we also outline the evolution of our sustainability strategy, "Pure Food + Pure Planet". As part of this strategy, we are signing up to Science Based Targets and aiming to reduce manufacturing emissions by 30% and supply chain emission intensity by 25% by 2030, while achieving net zero carbon emissions no later than 2050. We also launched our diversity and inclusion strategy which will continue to foster a strong and inclusive culture in our organisation.

 

We expect the disruptive impact of Covid-19 will abate during the course of 2021 and based on this we expect adjusted EPS to increase by 6% to 12% on a constant currency basis in FY 2021 with growth driven by both wholly-owned businesses of GPN and GN. We anticipate that 2021 will see consumers continue to focus on health and wellbeing: prioritising functional nutrition including immunity enhancing products; maintaining a healthy weight; and supplementing protein-rich foods to support performance and healthy lifestyle goals. This positions Glanbia very well for the future given our core focus on nutrition, health and wellbeing."

 

*As defined in the glossary on page 36, like-for like excludes the impact of acquisitions during year and the 53^rd week of 2019 that was not present in 2020.

 

FY 2020 Summary Financials

2020 full year results	Reported	Reported	Reported	Constant
€m	FY 2020	FY 2019	Change	Currency Change1
Wholly-owned business (pre-exceptional)
Revenue	3,823.1	3,875.7	-1.4%	+ 0.6%
EBITA2	209.6	276.8	- 24.3%	- 22.6%
EBITA margin	5.5%	7.1%	- 160 bps	- 160 bps
Joint Ventures
Share of profit after tax (pre-exceptional)	61.6	48.6	+ 26.7%
Total Group profit after tax (pre-exceptional)	175.3	214.8	- 18.4%
Adjusted earnings per share3	73.78c	88.10c	- 16.3%	- 14.9%
Exceptional costs (after tax)	(31.5)	(34.6)
Basic earnings per share	48.72c	61.04c

 

1.   To arrive at the constant currency change, the average exchange rate for the current period is applied to the relevant reported result from the same period in the prior year. The average euro US Dollar exchange rate for FY 2020 was €1 = $1.142 (FY 2019: €1 = $1.120). Reported and constant currency movements are on a pre-exceptional basis.

2.   EBITA is defined as earnings before interest, tax and amortisation.

3.   This release contains certain alternative performance measures. Detailed explanation of the key performance indicators and non-IFRS performance measures can be found in the glossary on pages 36 to 42.

 

FY 2020 constant currency summary of revenue progression

	Reported Revenue		Summary of FY 2020 constant currency movement
	FY 2019	FY 2020	Volume	Price	Like-for-like	FY19 53rd week*	Acquisitions	Total movement
Glanbia Performance Nutrition	1,363.8	1,138.0	-13.4%	0.1%	-13.3%	-1.7%	0.0%	-15.0%
Nutritional Solutions	744.9	746.8	2.4%	-1.6%	0.8%	-1.9%	3.1%	2.0%
US Cheese	1,767.0	1,938.3	5.0%	8.8%	13.8%	-1.9%	0.0%	11.9%
Glanbia Nutritionals	2,511.9	2,685.1	4.2%	5.8%	10.0%	-1.9%	0.9%	9.0%
Total wholly-owned businesses	3,875.7	3,823.1	-2.0%	3.8%	1.8%	-1.8%	0.6%	0.6%

 

* The FY 2020 results are for a 52 week period ended 2 January 2021 while the FY 2019 results are for the 53 week period ended 4 January 2020. The 53^rd week adjustment is to allow for like-for-like comparison.

 

FY 2020 Financial review

In FY 2020 Glanbia wholly-owned revenue was €3,823.1 million, an increase on prior year of 0.6% constant currency (down 1.4% reported). Like-for-like wholly-owned revenue was up 1.8% constant currency compared to FY 2019. The drivers of this were growth in price of 3.8% offset by volume decline of 2.0%. GN delivered like-for-like volume growth which was more than offset by declines in GPN. Both GN and GPN delivered price improvement versus prior year. Revenue from acquisitions made within 12 months delivered 0.6% revenue growth in FY 2020. Acquisition revenue related to Watson and Foodarom which were acquired by GN in February 2019 and August 2020 respectively.

 

Wholly-owned EBITA pre-exceptional was €209.6 million, down 22.6% constant currency (down 24.3% reported). Wholly-owned EBITA margins were 5.5%, down 160 basis points on a constant currency and reported basis due to margin declines in both GPN and GN. The decline in wholly-owned EBITA and margin was primarily driven by the impact of Covid-19 on GPN where lower revenue drove significant negative operating leverage in the second quarter of 2020 and GN margins were primarily impacted by dairy market dynamics. GPN margin improved materially, with double-digit EBITA margins in the second half of the year.

 

Glanbia's pre-exceptional share of equity accounted investees (Joint Ventures) profit after tax increased by €13.0 million to €61.6 million for FY 2020 and this was driven by a strong performance from the MWC-Southwest Holdings joint venture in the US which more than offset marginal declines in the remaining joint ventures. 

 

Total Group profit (pre-exceptional items) for the period was €175.3 million, down €39.5 million on prior year.

 

Adjusted earnings per share was 73.78 cent. This was a decrease on prior year of 14.9% constant currency (down 16.3% reported). Including exceptional costs basic earnings per share was 48.72 cent (2019: 61.04 cent).

 

Dividend

The Board is recommending a final dividend of 15.94 cent per share which brings the total dividend for the year to 26.62 cent per share, in line with the prior year. This total dividend represents a return of over €78 million to shareholders from 2020 earnings and a payout ratio of 36.1% of 2020 adjusted earnings per share. While the planned 2020 dividend payout ratio is marginally ahead of the target payout ratio of 25% to 35%, the Board has decided to maintain the dividend in line with prior year due to the strong cash performance during 2020, the reduction in net debt during the year and the robust financial position of the Group. The final dividend will be paid on 7 May 2021 to shareholders on the share register on 26 March 2021.

 

Share buyback

Glanbia shareholders approved the Company's general authority to repurchase shares at the 2020 annual general meeting ("AGM") on 22 April 2020. This authority remains in place until the next AGM of the Company on 6 May 2021.

 

On 9 November 2020 Glanbia announced a share buyback programme of up to €50 million in total value of Glanbia plc ordinary shares. At the end of FY 2020 Glanbia had repurchased 1,643,907 ordinary shares (representing 0.6% of total issued ordinary shares) at a total cost of €16.6 million. The share buyback has not had a material impact on the Company's earnings per share, total shareholder return or net asset value per share in 2020. This buyback programme has continued in 2021.

 

The Board will seek to retain the option of share buybacks by seeking the required shareholder authority at the next AGM. During 2021 the Board will continue to evaluate share buybacks as part of Glanbia's capital allocation policies.

 

Capital investment

Glanbia's total investment in capital expenditure (tangible and intangible assets) was €64.2 million in FY 2020 of which €47.7 million was strategic investment. Glanbia's capital investment programme continued in key strategic projects throughout the year including investment in the direct-to-consumer ("DTC") e-commerce platform and production plant reconfiguration in GPN as well as extending solutions capabilities in GN. Total capital expenditure for 2021 is expected to be €80 million to €90 million.

 

Covid-19 update

From the onset of the Covid-19 crisis the Group quickly implemented business continuity planning teams with three priorities; protect the health and welfare of employees, continue food supply and maintain the Group's strong financial position. Day-to-day operations continue to be managed on this basis and this will remain in place while disruption from the pandemic continues. The strength of the Glanbia portfolio was evident through 2020 as while Covid-19 brought significant market disruption to GPN, particularly in the second quarter, GN delivered a good result as the range of capabilities, depth of customer relationships and broad sector exposures enabled the Group to navigate the demand disruption of Covid-19. Joint Ventures delivered a strong performance overall as their operating models protected the business from dairy market volatility. The Group has continued to execute against its strategic agenda throughout 2020 and will continue to do so utilising the digital tools that have been adopted very effectively in the business. During the year significant progress was made on the GPN transformation and all major capital investment projects are on track including the completion of the construction phase of two large-scale greenfield production plants; MWC-Southwest Holdings in Michigan and Glanbia Cheese EU in Ireland. The Group continued its growth agenda with the completion of the Foodarom acquisition within GN and given its strong balance sheet remains ambitious to pursue further acquisition opportunities in the future.

 

Glanbia expects the disruption to its markets associated with the pandemic will abate gradually during the course of 2021 and this has been the basis on which the Group's plans have been developed. Glanbia is confident that as Covid-19 related restrictions are reduced GPN's trading performance can recover quickly. After delivering good growth in Q1 2020, Q2 was challenging and during the second half of 2020 GPNs' sales trends recovered in markets where restrictions were eased. Furthermore, GPN now has leading positions in the destinations where consumers are shopping for better-for-you nutrition products with 70% of sales in FY 2020 in the e-commerce and the food, drug, mass and club ("FDMC") channels.

 

Growth strategy

Now more than ever, consumers are mindful of their health and wellbeing: prioritising functional nutrition including immunity; maintaining a healthy weight; and supplementing their diet with protein-rich foods to support their performance and healthy lifestyle goals. Glanbia plays into these trends via its two growth platforms, GPN and GN. GPN has a focused brand strategy centred on the ON and SlimFast brands and GN Nutritional Solutions has market leading platforms in essential micro-nutrients and protein solutions. Glanbia will continue to invest in its core brands and ingredient solutions to drive growth as well as expand into adjacencies via innovation and acquisition. This is enabled by continued investment in talent and technology. Glanbia has a strong balance sheet and liquidity to facilitate and fuel this growth.

 

Board changes

Appointment of independent board director

Today, Glanbia is announcing that Paul Duffy will be appointed to the board as an independent non-executive director effective 1 March 2021. Paul (aged 55) is the former Chairman and CEO of Pernod Ricard North America, a global leader in the Wine and Spirits industry. He brings extensive strategic and brand experience of the consumer packaged goods sector to the Board including brand prioritisation, brand planning, route-to-market, portfolio management and restructuring.

 

During his 25 year career with Pernod Ricard, Paul held a number of senior management positions including Chairman and CEO roles at Pernod Ricard UK, The Absolut Company (Sweden) and Irish Distillers. He served on the Pernod Ricard worldwide management executive committee. He is currently a director of W.A. Baxter & Sons (a United Kingdom Food Group) and is a former director of Corby Spirit and Wine Limited, a leading Canadian marketer and distributor of spirits and wines listed on the Toronto Stock Exchange. He is a Fellow of Chartered Accountants Ireland and is a graduate of Trinity College Dublin.

 

Paul has notified Glanbia plc that, save as disclosed herein, he does not have any details to be disclosed as required under Paragraph 6.6.7, Chapter 6 of the Euronext Dublin Listing Rules and Paragraph 9.6.13, Chapter 9 of the UK Listing Rules.

 

Glanbia Co-operative Society representation changes

Glanbia has been informed by its largest shareholder, Glanbia Co-operative Society Limited (the "Society"), that it has taken a strategic decision to reduce the Society's representation on the board of Glanbia plc in order to facilitate the appointment of additional diverse, independent non-executive directors to that board.

 

The current plc board size is 15. The Society currently nominates seven directors to the plc board and in 2022 it had previously been agreed that the number of Society nominees would reduce to 6. Under the Society's new proposals, announced today, it will progressively reduce its number of directors on the plc board to three by June 2023 and the overall board size will reduce from 15 currently to 13 by 2023.

 

The Chairman and two Vice-Chairmen of the Society will be the nominees to the plc board at that point. This change will create three additional independent non executive board director positions on the plc board. While the nomination and governance committee of the plc board will run the process to select and appoint the three new diverse independent directors in place of the Society's nominees, the Society's officers will be invited to participate in the selection process for these roles.

 

The Society's representation on the plc board is set by a contract (the "Relationship Agreement") dated 2 July 2017 entered into by Glanbia and the Society as required in compliance with Listing Rule 6.1.7(2) of Euronext Dublin and Listing Rule 9.2.2 AD of the United Kingdom Listing Authority. The Society and the plc have further agreed that these changes will remain applicable for a period of five years and will be reviewed thereafter by both parties. The Society and Glanbia plan to formally amend the Relationship Agreement to reflect the changes announced today.

 

It is agreed that over the next three years the plc board of directors will be constituted as follows:

·      At all times there will be two executive directors on the plc board;

·      In 2021, the number of independent (of the Society) non-executive directors will increase from six to seven and the number of nominee directors from the Society will reduce to six;

·      In 2022, the number of independent (of the Society) non-executive directors remains at seven and the number of nominee directors from the Society will reduce to five; and

·      In 2023, the number of independent (of the Society) non-executive directors increases from seven to eight and the number of nominee directors from the Society will reduce to three.

 

ESG Agenda

The Group made significant progress in its environmental, social and governance ("ESG") agenda in 2020. Following a Group-wide review Glanbia has significantly evolved its sustainability strategy, "Pure Food + Pure Planet". As part of this strategy, Glanbia is setting an ambitious commitment to decarbonise its operations and value chain by committing to science based targets. The commitment will see a reduction in manufacturing emissions by 30% and supply chain emissions by 25% by 2030 and aims to achieve net zero carbon emissions no later than 2050. On waste, Glanbia has committed to zero waste to landfill from all operational sites by 2025 and a 50% reduction in food waste by 2030. Glanbia will complete water risk assessments for all manufacturing sites in 2021 with water audits at most material sites. Following this, target setting for water and packaging usage will be conducted in 2021 to inform the further evolution of the strategy. Progress against these targets will be measured and published annually by the Group.

 

On social areas the Group has supported a number of initiatives across the communities within which it operates to alleviate the impact of Covid-19 restrictions. Highlights have included: various donations to first responders, healthcare workers, foodbanks and charities globally; provision of protective equipment to several charities; and live virtual workouts for consumers with donations going to help personal trainers during lockdowns. During 2020 no employees were furloughed and the Group has not availed of any government support related to Covid-19.

 

Glanbia has also made significant progress in the development of a Diversity and Inclusion ("D&I") strategy. Through its actions, Glanbia is committed to fostering a truly inclusive culture nurturing a diverse workforce reflective of the customers and consumers Glanbia proudly serves, where every employee feels that they belong and that they have equal opportunities to thrive. 2021 priorities will focus on: embedding inclusive leadership behaviours; ensuring that talent and recruitment processes are fair and equitable; building data capability to track and measure actions; and engaging with internal and external stakeholders on Glanbia's commitment to D&I through a range of visible actions.

 

On governance, the Board has made further progress on its evolution during 2020 with the appointment of the Group's first independent Chairman, Donard Gaynor on 8 October 2020 as well as an increase in female representation on the Board with the total number of female directors on the Board now three. In addition, the Society further reduced its representation on the Group Board by one during the year bringing its current representation to seven Board directors and less than 50% representation. Under new proposals, announced today, the Society will progressively reduce its number of nominee directors on the plc board to three by June 2023 and the overall board size will reduce from 15 currently to 13 by 2023.

 

Outlook

The Group currently expects pandemic related restrictions to ease in key regions during the course of 2021 assuming the widespread rollout of vaccines are successful in reducing Covid-19 infection rates, however the duration and impact of the pandemic remains volatile. In FY 2021 Glanbia expects to deliver adjusted earnings per share growth of 6% to 12%, constant currency, driven by revenue and EBITA growth in both GPN and GN. Glanbia's focus on the GPN transformation programme will provide an opportunity to build on the achievements delivered in the second half of 2020 and drive further margin improvement in FY 2021 over FY 2020.

 

FY 2020 Review of operations and markets

 

	FY 2020 pre-exceptional			FY 2019 pre-exceptional
€m	Revenue	EBITA	Margin %	Revenue	EBITA	Margin %
Glanbia Performance Nutrition	1,138.0	91.2	8.0%	1,363.8	146.4	10.7%
Nutritional Solutions	746.8	90.5	12.1%	744.9	100.0	13.4%
US Cheese	1,938.3	27.9	1.4%	1,767.0	30.4	1.7%
Glanbia Nutritionals	2,685.1	118.4	4.4%	2,511.9	130.4	5.2%
Total wholly-owned businesses	3,823.1	209.6	5.5%	3,875.7	276.8	7.1%

 

 

Glanbia Performance Nutrition

				Constant Currency
€m	FY 2020	FY 2019	Change	Change
Revenue	1,138.0	1,363.8	-16.6%	-15.0%
EBITA (pre-exceptional)	91.2	146.4	- 37.7%	- 36.2%
EBITA margin	8.0%	10.7%	- 270bps	- 270bps

 

Commentary on percentage movements is on a constant currency basis throughout

 

Revenue

GPN revenue declined by 15.0% in FY 2020 versus prior year on constant currency basis. Like-for-like branded sales declined by 10.8%, driven by volume declines of 10.9% offset by a price increase of 0.1%. After a good start to 2020 where in the first quarter GPN delivered 6.0% growth in like-for-like branded revenues, the Covid-19 pandemic caused significant disruption globally in the second quarter. Revenues improved sequentially in the second half of 2020 in spite of some weakness in Europe in the fourth quarter as restrictions were reintroduced. Over the full year the key areas negatively impacted by Covid-19 were International markets which were curtailed as well as the specialty and distributor channels in North America. GPN grew in e-commerce channels globally in 2020 as consumer behaviours and shopping patterns altered through the evolution of the pandemic. The FDMC channel was down year-on-year due to strong prior year comparisons and headwinds in the ready-to-eat category in the North America Lifestyle business which was impacted by consumer mobility restrictions. Price increase mainly related to strategic pricing decisions in the North America Performance Nutrition and International portfolios which more than offset promotional activity in the DTC business.

 

EBITA

GPN pre-exceptional EBITA in FY 2020 was €91.2 million, 36.2% lower than the prior year, with a pre-exceptional EBITA margin of 8.0%, 270 basis points lower than prior year. EBITA declined as a result of revenue decline and the negative operating leverage associated with the significant decline in revenues in the second quarter in particular. EBITA margins improved significantly to 11.8% in the second half of 2020 (3.7% H1 2020) as sales volume trends improved, price increases were implemented and benefits crystallised from the execution of the GPN transformation project.

 

GPN transformation programme and growth strategy

GPN commenced a transformation programme in late 2019 to realign operating and supply chain structures in support of growth ambitions, sharpen focus on brands and optimise routes-to-market across non-US markets to drive greater efficiencies, improve margin and deliver top line growth with significant progress made during 2020. The project is delivering against its plans and is on target to deliver an overall GPN EBITA margin ambition by 2022 of between 12% and 13%, an increase of 400 to 500 basis points on FY 2020 margin. The project will continue through 2021 as the onset of the pandemic led to a further broadening and deepening of its scope.

 

Within the programme key efficiency projects include: a rationalisation of SKUs from the portfolio; the exit of contract business in North America; significant realignment of routes-to-market in regions outside North America; and a consolidation of supply chain activity. Growth oriented initiatives include: the prioritisation of the Optimum Nutrition ("ON") and SlimFast brands as category leaders within the portfolio; targeted price increases which were delivered in H2 2020; and a reorganisation of talent and teams to align resourcing to growth opportunities. 

 

GPN is now positioned as a market leader in the growth channels of e-commerce and FDMC. In FY 2020 GPN derived 70% of its revenues from these channels which are expected to be a key driver of future growth given the consumer shopping trends accelerated by Covid-19. GPN has leading positions within these channels via the ON and SlimFast brands which have strong positions in their respective categories of performance nutrition and weight management. These brands delivered consumption growth in measured channels in 2020 and combined represented 71% of GPN's branded revenues in FY 2020. 

 

North America Performance Nutrition portfolio

In the North America Performance Nutrition portfolio branded like-for-like revenues declined by 9.0% in 2020 compared to prior year. This was driven by volume declines in the specialty and distributor channels which were heavily impacted by Covid-19 somewhat offset by price increases implemented in the second half of the year. There was good revenue growth in the period in domestic e-commerce and FDMC channels which now make up the majority of sales in this portfolio. The ON brand has a leading position within its category in these channels and performed well in FY 2020 with consumption increasing 4% versus prior year in measured channels¹ in the period.

 

North America Lifestyle portfolio

In the North America Lifestyle portfolio, like-for-like revenue decreased by 5.3% in 2020 versus the prior year. This was driven by headwinds for the think! brand as reduced consumer mobility as a result of Covid-19 resulted in a decline in the ready-to-eat category. SlimFast was impacted by strong prior year comparisons in the second half of the year. SlimFast continued to outperform the category and delivered 4% consumption growth in measured channels¹ in FY 2020 with strong growth in e-commerce channels. think! outperformed the category performance in the year and Amazing Grass, GPN's plant based nutrition brand, delivered consumption growth as consumers sought out products providing natural immunity.

 

1.         North America measured channels include e-commerce, FDMC (food, drug, mass, club) and specialty channels. Data compiled from published external sources and Glanbia estimates.

 

International

In the International portfolio like-for-like revenue decreased by 21.3% in 2020 versus the prior year. International markets were severely disrupted by lockdowns as routes-to-market in many countries were essentially closed in the second quarter and restrictions were reintroduced in Europe in the fourth quarter. This resulted in significant negative operating leverage particularly in Q2. During the third quarter many International markets began to reopen and there was a corresponding recovery in sales. As part of the transformation programme, GPN has realigned its footprint internationally to focus on targeted key growth markets and further utilising e-commerce, to grow the business.

 

Direct-to-Consumer

GPN's Direct-to-Consumer ("DTC") business delivered like-for-like growth of 1.9% in FY 2020 versus prior year. The DTC business delivered strong growth in the second half of 2020 offsetting declines in the first half. Following a further assessment as part of the transformation project, GPN plans to further leverage DTC globally to accelerate and augment its e-commerce channel strategy across the business.

 

Glanbia Nutritionals

GN performance				Constant Currency
€m	FY 2020	FY 2019	Change	Change
GN Total Revenue	2,685.1	2,511.9	+6.9%	+9.0%
EBITA (pre-exceptional)	118.4	130.4	-9.2%	-7.4%
EBITA margin	4.4%	5.2%	-80bps	-80bps

 

Commentary on percentage movements is on a constant currency basis throughout

 

GN recorded a good performance in FY 2020 with revenues up 9.0% on prior year. Like-for-like revenue was up 10.0% which was driven by volume increases of 4.2% and favourable pricing of 5.8%. Volume increase was across both Nutritional Solutions and US Cheese as the broad sectoral reach of the business resulted in robust end-market demand through the year. Favourable pricing was driven by US Cheese due to higher average market prices in the period versus prior year. Acquisitions added a further 0.9% to revenues in 2020. GN EBITA decreased in FY 2020 versus prior year by 7.4% as a result of lower EBITA margins which declined by 80 basis points. EBITA margins were impacted by dairy market dynamics.

 

GN divisional performance		FY 2020			FY 2019
€m	Revenue	EBITA	Margin  %	Revenue	EBITA	Margin  %
Nutritional Solutions	746.8	90.5	12.1%	744.9	100.0	13.4%
US Cheese	1,938.3	27.9	1.4%	1,767.0	30.4	1.7%
Total GN	2,685.1	118.4	4.4%	2,511.9	130.4	5.2%

 

Nutritional Solutions

				Constant Currency
€m	FY 2020	FY 2019	Change	Change
Revenue	746.8	744.9	+0.3%	+2.0%
EBITA (pre-exceptional)	90.5	100.0	-9.5%	-7.7%
EBITA margin	12.1%	13.4%	-130bps	-130bps

 

Nutritional Solutions ("NS") revenues increased in FY 2020 by 2.0% versus prior year. Like-for-like revenue increased by 0.8% driven by a 2.4% increase in volume and a 1.6% decrease in price. Volume growth was broad based across the portfolio in essential micro-nutrients as well as dairy solutions as a result of good end-market demand. The price decrease primarily related to reduced dairy ingredient pricing year-on-year. The Watson and Foodarom acquisitions delivered a further 3.1% of revenue growth.

 

Demand for NS's key ingredient solutions remained robust throughout the year. The business did see a reduction in demand from customers in the ready-to-eat category as Covid-19 restrictions reduced consumer mobility however, this decline was offset by growth in other aspects of the portfolio including a strong demand for immunity enhancing consumer ready offerings. 

 

NS pre-exceptional EBITA in FY 2020 was €90.5 million, 7.7% lower than prior year due to lower margins. Margins declined by 130 basis points versus prior year to 12.1% driven by reduced margins in dairy solutions which were impacted by negative price and some adverse business mix.

 

In August 2020 the Foodarom acquisition was completed by GN for an effective consideration of CAD 60 million plus contingent consideration. Foodarom is a Canadian flavours business with CAD 34 million annual revenue. It has strong flavour formulation capability and is focused on segments complementary to NS.

 

NS growth strategy

NS has an ambitious growth strategy leveraging its existing portfolio and market leadership in essential micro-nutrients and protein solutions. The business has seen strong demand from customers seeking solutions for products which provide immunity support as well as essential nutrition. NS will continue to make selective complementary acquisitions, which can build on existing platforms as well as expand into adjacent capabilities. Over the past two years GN has made two strategic acquisitions, Watson and Foodarom. Watson is a US based essential micro-nutrients business and has provided NS with additional scale as well as new technologies which further build NS's offerings within vitamin and mineral premixes. Foodarom will support NS to scale into the adjacent flavours technology platform. This area is highly complementary as it is a key aspect of product formulation and provides NS with the opportunity to further deepen engagement with existing customers as well as gain new business relationships. Both acquisitions have performed well since completion.

 

US Cheese

				Constant Currency
€m	FY 2020	FY 2019	Change	Change
Total US Cheese Revenue	1,938.3	1,767.0	+9.7%	+11.9%
EBITA (pre-exceptional)	27.9	30.4	-8.2%	-6.4%
EBITA margin	1.4%	1.7%	-30 bps	-30 bps

 

US Cheese revenue increased in FY 2020 by 11.9%, with like-for-like revenue increasing 13.8%. This was driven by a 5.0% increase in volume and an 8.8% increase in price. Volume growth reflected good demand from customers with retail end-market exposure, a category which was strong as a result of Covid-19. Pricing was volatile throughout the year and averaged at higher levels than prior year as a result of higher category demand. US Cheese operates a business model which helped to negate the majority of the impact of significant price volatility in the period.

 

US Cheese delivered a 6.4% decrease in pre-exceptional EBITA in FY 2020 versus prior year. This was driven by reduced EBITA margin which declined by 30 basis points as a result of higher operating costs in the second half of the year.

 

New JV project in Michigan, US

The new large-scale MWC-Southwest Holdings JV plant in Michigan is on track and commenced commissioning in October 2020. Commissioning is expected to be completed by the second quarter of 2021. With the support of milk supplying partners the project is progressing well and when fully operational, the facility will further consolidate the Groups leading position in the US American-style cheddar cheese and value-add whey markets. On a full year basis this plant will increase Glanbia's US Cheese production capacity by over 30%.

 

Equity accounted investees (Glanbia share)

				Constant Currency
€m	FY 2020	FY 2019	Change	Change
Share of joint ventures' profit after tax (pre-exceptional)*	61.6	48.6	+26.7%	+28.1%

 

* Includes Glanbia's share of profits from the Glanbia Ireland, Glanbia Cheese UK, Glanbia Cheese EU and MWC-Southwest Holdings joint ventures.

 

Glanbia's principal joint ventures include Glanbia Ireland, Glanbia Cheese UK, Glanbia Cheese EU and MWC-Southwest Holdings. Glanbia uses the equity method of accounting for its joint ventures and includes its share of joint venture profit after tax in the adjusted earnings per share calculation.

 

Glanbia's share of JVs' profit after tax and before exceptional items, increased by €13.0 million to €61.6 million in FY 2020. This was driven by a strong performance in the MWC-Southwest Holdings JV, due to favourable dairy market dynamics which offset marginal declines in the European joint ventures.

 

Glanbia Cheese EU

The new Glanbia Cheese EU JV plant in Portlaoise, Ireland is on track with construction largely completed at the end of 2020 and commissioning expected to be completed by the second quarter of 2021. This plant will further enhance the Group's leading position in the mozzarella cheese category.

 

Board directors

On 8 October 2020 Donard Gaynor, Independent Non-Executive Director, was appointed Chairman in place of Martin Keane.

 

A full list of current directors and Board committee members is maintained on the Glanbia plc website: www.glanbia.com. Board changes over the previous 12 months are as follows:

 

·   Richard Laube, Independent Non-Executive Director, retired from the Board on 28 February 2020;

·   Jer Doheny and Eamon Power, directors nominated by Glanbia Co-operative Society Limited (the 'Society'), retired from the Board at the AGM on 22 April 2020;

·   John Murphy, a director nominated by the Society, joined the Board on 8 October 2020;

·   John Daly and Mary Minnick, Independent Non-Executive Directors, retired from the Board on 1 November 2020 and 31 December 2020 respectively; and

·   Jane Lodge and Roisin Brennan joined the Board as Independent Non-Executive Directors on 1 November 2020 and 1 January 2021 respectively.

 

Today, it was announced that Paul Duffy will join the plc board as an independent non-executive director on 1 March 2021.

 

Brexit

The end of the Brexit transition period on 31 December 2020 following the withdrawal of the United Kingdom ("UK") from the EU had no material financial impact on the Group. The Group has adopted its procedures to comply with various regulations associated with the EU-UK Trade and Cooperation Agreement ("TCA") which has been applied provisionally since 1 January 2021. To date there have been no material impacts on the Group's operations or trading performance as a result of the TCA. The Board will continue to monitor the development of follow on agreements related to other aspects of EU-UK trade as well as future UK trade agreements with other countries which may impact Glanbia. This falls within the Group's ongoing process of monitoring key geopolitical trading relationships as part of the Board's overall risk management process.

 

Glanbia currently utilises the UK based CREST settlement system for electronic trades made in the Company's ordinary shares. However, as a result of Brexit it will no longer be possible for Irish public companies to use the CREST system after 30 June 2021, and the Company, like all other Irish incorporated and traded PLCs, will have to migrate settlement to another system based within the EU, called Euroclear Bank. Glanbia held an extraordinary general meeting ("EGM") on 11 February 2021 where three resolutions were approved to amend the Company's Articles of Association to enable a migration to the Euroclear Bank settlement system ("Migration"). It is expected that this Migration will take place in mid-March 2021. 

 

The Company's stock exchange listings will not change in connection with the Migration. The Company does not expect that the Migration will result in any change in the eligibility of the Company for the indices of which it is a constituent. In addition, the ISIN relating to the Company's shares will be unchanged. 

 

 

FULL YEAR 2020 Finance Review

 

2020 Group Income Statement

		2020			2019
€m	Pre-exceptional	Exceptional	Total	Pre-exceptional	Exceptional	Total
Revenue	3,823.1	-	3,823.1	3,875.7	-	3,875.7
Earnings before interest, tax and amortisation (EBITA)	209.6	(34.5)	175.1	276.8	(37.1)	239.7
EBITA margin	5.5%		4.6%	7.1%	-	6.2%
Intangible asset amortisation and impairment	(60.9)	-	(60.9)	(60.9)	(2.0)	(62.9)
Operating profit	148.7	(34.5)	114.2	215.9	(39.1)	176.8
Finance income	4.1	-	4.1	6.2	-	6.2
Finance costs	(24.6)	-	(24.6)	(32.5)	-	(32.5)
Share of results of joint ventures	61.6	(1.2)	60.4	48.6	-	48.6
Profit before taxation	189.8	(35.7)	154.1	238.2	(39.1)	199.1
Income taxes	(14.5)	4.2	(10.3)	(23.4)	4.5	(18.9)
Profit for the year	175.3	(31.5)	143.8	214.8	(34.6)	180.2

 

Revenue

Revenue increased in 2020 by 0.6% versus prior year on a constant currency basis to €3.8 billion, a decrease of 1.4% on a reported basis. Like-for-like wholly-owned revenue increased by 1.8%, driven by price increase of 3.8% offset by volume decline of 2%. The full year impact of the 2019 Watson acquisition, and the recent Foodarom acquisition added a further 0.6% to annual revenue. Detailed analysis of revenue is set out within the operations review.

 

EBITA (pre-exceptional)

EBITA before exceptional items declined 22.6% constant currency (down 24.3% reported) to €209.6 million (2019: €276.8 million) primarily due to reduced EBITA in GPN. EBITA margin in FY 2020 was 5.5%, a decline of 160 basis points reported versus prior year (2019: 7.1%). Margin decline was driven by both GPN and GN segments.

 

GPN pre-exceptional EBITA decreased by 36.2% constant currency to €91.2 million (2019: €146.4 million), a decrease of 37.7% on a reported basis. GPN pre-exceptional EBITA margin at 8.0% was 270 basis points lower than prior year reported, due to lower volumes and resulting negative operating leverage arising from the impact of Covid-19 restrictions, which resulted in temporary closure of key sales channels globally during the height of the pandemic in the second quarter.

 

GN pre-exceptional EBITA declined 7.4% constant currency to €118.4 million (2019: €130.4 million), a decrease of 9.2% on a reported basis. GN pre-exceptional EBITA margin was 4.4%, down 80 basis points from 2019, due to the impact of product mix and unfavourable dairy margin dynamics.

 

Net finance costs

Net finance costs decreased by €5.8 million to €20.5 million (2019: €26.3 million). The decrease was driven by reduced debt levels across the group and favourable interest rates. The Group's average interest rate in 2020 was 2.9% (2019: 3.4%), with the reduction on prior year being mainly due to lower US dollar interest rates. Glanbia operates a policy of fixing a significant amount of its interest exposure, with 90% of projected 2021 debt currently contracted at fixed rates.

 

Share of results of joint ventures

The Group's share of joint venture profits increased by €13.0 million to €61.6 million (2019: €48.6 million) in the year. The share of results of joint ventures is stated after tax and before exceptional items. The joint ventures performed strongly, with year-on-year volume and price growth in the MWC-Southwest Holdings joint venture slightly offset by declines in the European joint ventures. Strong operational performance and favourable market dynamics in the US drove the improved performance of the MWC-Southwest Holdings JV.

 

Income taxes

The 2020 pre-exceptional tax charge decreased by €8.9 million to €14.5 million (2019: €23.4 million). This represents an effective tax rate, excluding joint ventures, of 11.3% (2019: 12.3%). The reduction in the pre-exceptional tax rate is driven primarily by the geographic mix of profits and a lower charge for uncertain tax risks. The tax credit related to exceptional items is €4.2m. The Group currently expects that its effective tax rate for 2021 will be in the range of 12.0% to 13.0%.

 

Exceptional items

€m	2020	2019
Organisation redesign costs (note 1)	31.2	12.7
Covid-19 costs (note 2)	3.7	-
Acquisition integration costs (note 3)	3.4	6.8
Legal settlement gain (note 4)	(3.4)	-
Asset impairments (note 5)	(0.4)	17.3
Brexit related costs (note 6)	-	2.3
Wholly-owned exceptional charge before tax	34.5	39.1
Share of results of equity accounted investees (note 2)	1.2	-
Exceptional tax credit	(4.2)	(4.5)
Exceptional charge after tax	31.5	34.6

 

During 2020 there were cash outflows of €23.5 million and €6.0 million in respect of exceptional charges recognised in FY 2020 and FY 2019 respectively. During 2019 there were cash outflows of €12.0 million in respect of exceptional charges incurred in FY 2019.

 

Details of the exceptional items are as follows:

1.   Organisation redesign costs primarily relates to a fundamental reorganisation of the GPN segment which commenced in 2019. This global transformation programme aims to realign operating and supply chain structures in support of growth ambitions, sharpen focus on brands and optimise routes-to-market across non-US markets to drive greater efficiencies, improve margin and deliver top line growth. Costs incurred to date includes people and property related costs, professional consulting fees and costs associated with terminating and exiting certain contractual arrangements. Given the scale of this project, further costs are anticipated into 2021 with full completion of the project anticipated by early 2022.

2.   Covid-19 costs relate to the costs of dealing with the pandemic in the first half of the year by the Group and its joint ventures, and include the costs of implementing measures to protect people, incremental payments to front line workers during the height of the pandemic and other incidental labour related costs directly associated with the onset of this global pandemic.

3.   Acquisition integration costs comprise costs relating to the integration and restructuring of acquired businesses and the transaction costs incurred in completing the current year acquisition. The charge primarily comprises professional fees and related costs crystallised on post-acquisition integration.

4.   Legal settlement gain relates to net compensation received following the successful conclusion of a legacy case.

5.   Prior year asset impairments relate to the write down of inventory, development assets and fixed assets to their net realisable value. These impairments primarily related to the rationalisation and simplification of certain product lines and related assets in the GPN business. The credit in 2020 relates to the release of a provision not required on the disposal of certain inventory items. No similar costs were incurred in 2020.

6.   Prior year Brexit related costs were incurred in preparing the organisation for the departure of the United Kingdom from the European Union. Costs incurred include professional fees and increased storage and production costs as the Group sought to mitigate the potential risks related to Brexit during 2019. No further significant costs were incurred during 2020.

 

Profit after tax

Profit after tax for the year was €143.8 million compared to €180.2 million in 2019, comprising pre-exceptional profit after tax of €175.3 million down €39.5 million on prior year and exceptional charges of €31.5 million (2019: €34.6 million). The €39.5 million decline in pre-exceptional profit after tax is driven by the reduced profitability of wholly-owned businesses net of increased profitability of joint ventures and associates.

 

Earnings per share (EPS)

	2020	2019	Reported Change	Constant Currency Change
Basic EPS	48.72c	61.04c	(20.2%)	(18.9%)
Adjusted EPS	73.78c	88.10c	(16.3%)	(14.9%)

 

Basic EPS decreased by 20.2% reported versus prior year, driven by a year-on-year reduction in pre-exceptional profitability.

 

Adjusted EPS is a Key Performance Indicator (KPI) of the Group and a key metric guided to the market. During 2020 adjusted EPS guidance was withdrawn as a result of uncertainties caused by the Covid-19 pandemic. Adjusted EPS declined by 14.9% constant currency (16.3% reported) in the year, driven primarily by the reduction in profitability of the GPN segment, offset by increased share of profits of joint ventures, lower interest costs and income taxes.

 

Cash flow

The principal cash flow KPIs of the Group and Business Units are Operating Cash Flow (OCF) and Free Cash Flow (FCF). OCF represents EBITDA of the wholly-owned businesses net of business-sustaining capital expenditure and working capital movements, excluding exceptional cash flows. FCF is calculated as the cash flow in the year before the following items: strategic capital expenditure, equity dividends paid, expenditure on share buyback, acquisition spend, proceeds received on disposal, exceptional costs paid, loans/equity invested in joint ventures, and foreign exchange movements. These metrics are used to monitor the cash conversion performance of the Group and Business Units and identify available cash for strategic investment. OCF conversion, which is OCF as a percentage of EBITDA is a key element of Executive Directors and senior management remuneration. OCF and FCF results for the Group are outlined below.

 

€m	2020	2019
EBITDA pre-exceptional	273.5	324.9
Movement in working capital (pre-exceptional)	77.8	(24.9)
Business-sustaining capital expenditure	(16.5)	(20.1)
Operating cash flow	334.8	279.9
Net interest and tax paid	(43.0)	(74.1)
Dividends from equity accounted investees	36.6	35.3
Payment of lease liabilities	(19.2)	-
Other (outflows)	(2.7)	(9.6)
Free cash flow	306.5	231.5
Strategic capital expenditure	(47.7)	(56.2)
Dividends paid to Company shareholders	(78.6)	(74.3)
Share buyback (Purchase of own shares)	(16.6)	-
Payment for acquisition of subsidiaries, net of cash and cash equivalents acquired	(21.9)	(58.3)
Proceeds from sale of property, plant and equipment	-	0.2
Exceptional costs paid	(29.5)	(12.0)
Loans/investment in equity accounted investees	(9.6)	(47.4)
Net cash flow	102.6	(16.5)
Exchange translation	30.0	(10.5)
Debt acquired on acquisition	(12.2)	(10.6)
Net debt movement	120.4	(37.6)
Opening net debt	(614.3)	(576.7)
Closing net debt	(493.9)	(614.3)

 

OCF was €334.8 million in the year (2019: €279.9 million) and represents a strong cash conversion on EBITDA of 122.4% (2019: 86%). The OCF conversion target for the year was 80%. The increase in OCF versus prior year was due primarily to favourable working capital inflows and a reduction in operating lease charges that are now presented differently under IFRS 16 and included after OCF.

 

The Group continues to actively manage its working capital. During the year, the Group had strong management of inventory and receivables, and continued on a programme to increase payables terms with significant vendors in response to similar increased receivables terms that have been agreed with certain customers.

 

FCF was €306.5 million versus €231.5 million in 2019, with the improvement primarily due to higher OCF, lower interest payments and lower net tax payments. Lease payments (previously accounted for in EBITDA) had no cash impact compared to prior periods but are now shown separately following the adoption of IFRS 16.

 

Acquisition spend relates to the cost of Foodarom which was acquired in August 2020. Loans to/equity in joint ventures includes the continuation of the investments in Glanbia Cheese EU, the mozzarella cheese joint venture in Portlaoise, Ireland and in MWC-Southwest Holdings, the joint venture cheese and whey plant in Michigan, US.

 

Share buyback cash flows relate to a share repurchase programme of up to €50 million launched in November 2020. This programme provides an opportunity to allocate capital to the benefit of shareholders and continued in 2021.

 

Group financing

Financing Key Performance Indicators	2020	2019
Net debt (€'m)	493.9	614.3
Net debt: adjusted EBITDA	1.70 times	1.71 times
Adjusted EBIT: net finance cost	10.0 times	9.3 times

 

The Group's financial position continues to be strong. Net debt at the end of 2020 was €493.9 million. This is a decrease of €120.4 million from the prior year end net debt of €614.3 million. At year-end 2020, Glanbia had committed debt facilities of €1.23 billion with a weighted average maturity of 4.4 years. Glanbia's ability to generate cash as outlined above and its available debt facilities ensures the Group has considerable capacity to finance future investments. Net debt to adjusted EBITDA was 1.70 times and interest cover was 10.0 times, both metrics remaining well within financing covenants.

 

During the year, the Group extended the maturity date of committed debt facilities by arranging US$375 million of new facilities, maturing between March 2028 and December 2031, and replaced existing indebtedness with US$180 million of facilities, maturing in January 2024 (total of US$555 million). The facilities were used to repay US$351 million of shorter maturing indebtedness in December 2020 and will additionally be used to repay US$156 million indebtedness maturing in June 2021. Accordingly, of €1.23 billion committed debt facilities at 2020 year-end, the Group had €1.1 billion facilities with a weighted average maturity of 4.8 years and an earliest maturity date of January 2024 (2019: €1.2 billion committed debt facilities with a weighted average maturity of 2.8 years).

 

Use of capital

 

Capital expenditure

The cash outflow relating to capital expenditure for the year amounted to €64.2 million (2019: €76.3 million) which includes €16.5 million of business-sustaining capital expenditure and €47.7 million of strategic capital expenditure. Key strategic projects completed in 2020 included investments in DTC e-commerce infrastructure as well as extending solutions capabilities in GN.

 

Investments in JVs

During 2020, the Group continued its investment in the new joint ventures which commenced in 2018. In 2020 a total of US$7.5 million (2019: US$35 million), was invested in the new cheese and whey manufacturing facility in Michigan, US which is part of the MWC-Southwest Holdings JV. This brings the total Group investment in the new plant in Michigan to $82.5 million. Construction is now complete and the plant commenced commissioning in October 2020 with full commissioning expected to be complete by Q2, 2021.

 

During 2020 the Group also invested a further €3.0 million in Glanbia Cheese EU, the joint venture mozzarella cheese plant in Portlaoise, Ireland, bringing the total invested to €28.0 million with a further €4.1 million committed. The remaining funding for this project will come from the other joint venture partners, government grants and dedicated joint venture banking facilities, which are non-recourse to Glanbia plc. Construction was largely completed at the end of 2020 and the plant will be fully commissioned by Q2, 2021.

 

Return on Capital Employed (ROCE)

	2020	2019	Change
Return on Capital Employed	9.0%	10.9%	-190bps

 

Return on Capital Employed (ROCE) decreased in 2020 by 190 basis points to 9.0%. This was primarily due to lower profitability in GPN which was significantly impacted by the Covid-19 pandemic. The Group is currently focused on executing a transformation programme in GPN which will return the segment to profitable growth in 2021 and consequently improve returns. Acquisitions remain a key part of the growth strategy of the Group with investments assessed against a target benchmark of 12% return after tax by the end of year three.

 

Dividends

The Board is recommending a final dividend of 15.94 cent per share which brings the total dividend for the year to 26.62 cent per share, in line with the prior year. This total dividend represents a return of over €78 million to shareholders from 2020 earnings and a payout ratio of 36.1% of 2020 adjusted earnings per share which is marginally ahead of the Board's target dividend payout ratio of 25% to 35%. The Board has decided to maintain the dividend in line with prior year as a result of the strong cash performance during 2020, the reduction in net debt during the year and the resultant strong financial position of the Group. The final dividend will be paid on 7 May 2021 to shareholders on the share register on 26 March 2021.

 

Total Shareholder Return

Total Shareholder Return (TSR) for 2020 was positive 5.0%. The STOXX Europe 600 Food & Beverage Index (F&B Index) a key benchmark for the Group, decreased by 6.5% in 2020. The three-year period 2018 to 2020 Glanbia TSR was negative 25.9% versus the F&B Index of +14.1%. The five-year Glanbia TSR to 2020 was negative 33.9% versus the F&B Index of +25.8%. Glanbia's share price at the end of the financial year was €10.38 compared to €10.16 at the 2019 year-end, a 2.2% increase.

 

Impact of new accounting standards

While new accounting standards and improvements are issued annually, one material new accounting standard was adopted during 2020. The impact of this standard is set out below:

 

IFRS 16 'Leases'

IFRS 16 'Leases' came into effect for the Group on 5 January 2020. Under this new accounting standard, the fair value of all qualifying operating leases, representing the present value of the lease payments over the life of the lease, are recognised as lease liabilities with corresponding right-of-use assets. The new standard results in the removal of rental charges of qualifying leases from the Income Statement and replacement with a depreciation charge in respect of the right-of-use assets and an interest charge relating to the lease liabilities.

 

The Group adopted the modified retrospective approach to transition permitted by the standard in which the cumulative effect of initially applying the standard is recognised in opening retained earnings at 5 January 2020. Under this approach, the comparatives for the 2019 reporting period are not restated. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 5 January 2020.

 

On 5 January 2020, the Group recognised right-of-use assets and lease liabilities of €106.4 million and €129.6 million respectively. Changes brought about by this new accounting standard do not have a material impact on the financial KPIs or adjusted EPS in the period. Adjusted earnings used to calculate EPS decreased by €0.4 million as a result of the adoption of IFRS 16.

 

Pension

The Group's net pension liability under IAS 19 (revised) 'Employee Benefits', before deferred tax, decreased by €17.0 million to €29.3 million in 2020 (2019: €46.3 million). The defined benefit pension liability is calculated by discounting the estimated future cash outflows using appropriate corporate bond rates. During 2020, returns on assets were greater than expected, as a result of a conservative investment strategy previously adopted, which more than offset modest increases in liabilities during this period of global uncertainty.

 

Foreign exchange

Glanbia generates over 90% of its earnings in US dollar currency and has significant assets and liabilities denominated in US dollars. As a result, and as Glanbia's reporting currency is euro, there can be a significant impact to reported numbers arising from currency movements year-on-year and on translation of US dollar non-monetary assets and liabilities in the preparation of the Consolidated Financial Statements. Commentary has been provided within the income statement on a constant currency basis to provide a better reflection of the underlying operating results in the year, as this removes the translational currency impact. To arrive at the constant currency change, the average foreign exchange rate for the current period is applied to the relevant reported result from the same period in the prior year. At the balance sheet date, due to the weakening of the US dollar compared to prior year, there was a currency translation loss arising primarily on the translation of US assets and liabilities into euro which is presented within other comprehensive income and amounted to €146.9 million in the year. The amount included a loss of €10.9 million on the retranslation of non-euro denominated cash and cash equivalents as presented in the cash flow statement. Average and year-end US dollar to euro rates were as follows:

 

	Average		Year-end
	2020	2019	2020	2019
1 euro converted to US dollar	1.1423	1.1196	1.2271	1.1147

 

Investor relations

Glanbia has a proactive approach to shareholder engagement. The Annual General Meeting is the key event in the year. Due to Covid-19 pandemic, the 2020 AGM was held as a closed meeting. Shareholders were provided with an opportunity to submit questions in advance of the meeting and were invited to follow the proceedings of the AGM by listening via a teleconference. All details relating to the AGM were published on the Company's website: www.glanbia.com/agm.

 

At the AGM, independent shareholders approved resolutions 12 and 13 where 56% and 70% of Independent shareholders voted in favour respectively for the Company having the authority to execute a share buyback at its discretion. In light of the voting outcome, Glanbia held an engagement with shareholders to better understand shareholder reasons behind the vote. The consultation was completed over May and June 2020 and whilst the majority of Independent shareholders supported Resolutions 12 and 13 as a useful tool for capital allocation a significant minority preferred the Company not engage in a buyback due to shareholder concentration concerns and prudent capital preservation. In light of this, the Board delayed launching a share buyback until 9 November 2020 when the company was successfully navigating the crisis and was in a strong financial position due to its cash flow. This engagement covered a shareholder base holding approximately 70% of the Company's equity.

 

In 2020, Glanbia virtually attended 10 international equities investor conferences which were organised by a variety of independent organisations. In addition to full year and half year results, Glanbia publishes interim management statements after the first and third quarters to provide investors with a regular update on performance and expectations throughout the year. All releases, reports and presentations are made available immediately on publication on the Group's investor relation website.

 

Following his appointment, the Group Chairman, consulted directly with shareholders in November and December 2020 to get their perspectives on the Company. This feedback was shared with and discussed by the Board at the December meeting.

 

Principal Risks and Uncertainties

The Board of Glanbia plc has the ultimate responsibility for the Group's systems of risk management and internal control. The Directors of Glanbia have carried out a robust assessment of the Group's principal risks, including those that may threaten Glanbia's business model, future performance, solvency or liquidity. The risk categorisation recognises the external risks associated with the operating environment, which are typically considered and managed through strategic processes, and the mainly internal risks associated with people, processes and systems which are managed through Glanbia's internal controls. Emerging risks with the potential to impact longer term success are also considered to ensure appropriate plans to respond to them over time.

 

The Group's principal risks and uncertainties are summarised in the risk profile table below. Changes to risks in the year are outlined below:

·      No new principal risks were identified during the year and while many of the principal risks noted prior to the pandemic remain the same in substance, they have been amplified by the impact of the virus.

·      A Covid-19 project team was immediately put in place to assess these threats and ensure appropriate incident and response plans are in place. As a provider of essential services, the Group has been able to keep its supply chains, manufacturing plants and distribution networks operating effectively during the pandemic. However, similar to other companies, the Group has experienced operational and market related challenges associated with Covid-19.

·      Direct Covid-19 impacts included areas such as reduced profitability, supply chain challenges, increased workforce planning requirements and negative impacts to the credit quality/liquidity of some of our customers and suppliers.

·      Indirect consequences included broader shifts in the channels in which the Group operates with a significant shift to online and increased market and price volatility at different points during the year.

·      Above all, Glanbia has reinforced its commitment to the health and safety of its employees and customers by putting people first.

·      One of the real positives for the Group was the strength of its IT and digital infrastructure which operated relatively seamlessly with the significantly increased number of employees working remotely.

·      The end of the transition period on 31 December 2020 following the withdrawal of the United Kingdom ("UK") from the EU ("Brexit") and the regulations associated with the EU-UK Trade and Cooperation Agreement ("TCA") which has been applied provisionally since 1 January 2021 has reduced the uncertainty surrounding issues such as tariffs and while some issues have still to be worked through, no significant impact to the Group's financial performance is expected.

 

There may be other risks and uncertainties that are not yet considered material or not yet known to Glanbia and this list will change if these risks assume greater importance in the future. Likewise some of the current risks will drop off the key risks schedule as management actions are implemented or changes in the operating environment occur.

 

	Strategic/External	Financial	Technological	Operational/Regulatory	Emerging
Risk where trend is increasing	•     Economic, industry and political •     Market disruption		•     Cyber security and data protection	•     Talent management	•     Climate change
Risk where trend is stable	·    Customer concentration	•     Taxation changes	•     Digital transformation	•     Health & Safety •     Supply chain •     Product safety and compliance •     Acquisition/integration

 

Key risk factors and uncertainties with the potential to impact on the Group's financial performance in 2021 include:

•    Economic, industry and political risk - as an international business, the Group operates in many countries and currencies where changing economic conditions can impact on it. Covid-19 actions taken by the countries in which the Group operates continue to evolve resulting in a risk of continued or further disruption to business activities, supply chains and employees. A prolonged pandemic-driven global recession may pose longer term risks as markets globally struggle to return to pre-Covid levels;

•    Market disruption risk - Covid-19 restrictions have had and, not withstanding the vaccination rollout process, will most likely continue to have a significant impact on commercial activity globally with the closure and subsequent re-opening of restaurants/food service outlets, gyms, convenience stores and the cancellation of multiple sporting events. The risk of continuing and possibly more aggressive waves of Covid-19 may further disrupt the ability of markets to re-open fully in 2021 and delay the return to pre-Covid sales levels, particularly in the GPN International markets, distributor networks and/or the specialty channel;

•    Supply chain risk - the ability of governments and medical agencies to contain and suppress the spread of the Covid-19 virus continues to be important in preventing unexpected supply chain disruptions which could result in restrictions on the importation of key raw materials and/or negative impacts on international sales channels. The Group is holding appropriate safety stocks of core raw materials, however a prolonged impact to supply chains would have negative consequences from both a supply and pricing perspective;

•    Customer concentration risk - while strategically the Group aims to build strong customer relationships with major customers, material disruption with, or loss of, one or more of these customers, or a significant deterioration in commercial terms, could materially impact profitability. It can also expose the Group to credit exposure and other balance sheet risks. The Board is focused on utilising available mitigation to limit such exposures where possible. This remains relevant in 2021 as customers continue to navigate the challenges imposed by Covid-19 restrictions on their operations; and

•    Health and Safety risk - a failure to maintain good health and safety practices or a significant escalation in the spread of the virus or new variants, in Glanbia's core markets, may adversely impact performance.

 

The Group actively manages these and all other risks through its risk management and internal control processes.

 

 

 

 

 

 

Cautionary statement

This announcement contains forward-looking statements. These statements have been made by the Directors in good faith based on the information available to them up to the time of their approval of this report. Due to the inherent uncertainties, including both economic and business risk factors underlying such forward-looking information, actual results may differ materially from those expressed or implied by these forward-looking statements. The Directors undertake no obligation to update any forward-looking statements contained in this announcement, whether as a result of new information, future events, or otherwise.

 

 

 

On behalf of the Board

 

Siobhán Talbot                                                                                      Mark Garvey

Group Managing Director                                                             Group Finance Director

 

24 February 2021

 

 

 

 

Annual General Meeting (AGM)

Glanbia plc's AGM will be held on Thursday, 6 May 2021. The logistics of this meeting will be subject to guidance and regulations of the Government of Ireland in relation to public gatherings and the prevention of the spread of Covid-19. Glanbia will publish more details on this closer the time of the event.

 

Results webcast and dial-in details

There will be a webcast and presentation to accompany this results announcement at 8.30 a.m. GMT today. Please access the webcast from the Glanbia website at http://www.glanbia.com/investors/results-centre, where the presentation can also be viewed or downloaded. In addition, a dial-in facility is available using the following numbers:

 

 

Ireland	+353 (0)1 246 5638
UK	+44 (0)330 336 9125
Netherlands	+31 (0)20 703 8211
France	+33 (0)1 70 72 25 50
Germany  North America	+49 (0) 69 2222 25574  +1 323 794 2093

 

The access code for all participants is: 3007917

A replay of the call will be available for 30 days approximately two hours after the call ends.

 

For further information contact

Glanbia plc +353 56 777 2200

 

Mark Garvey, Group Finance Director
Liam Hennigan, Group Director Strategic Planning and Investor Relations	+353 86 046 8375
Martha Kavanagh, Head of Corporate Communications	+353 87 646 2006

 

 

 

 

 

Group Income Statement

for the financial year ended 2 January 2021

 

			2020			2019
	Notes	Pre- exceptional €'m	Exceptional €'m (note 4)	Total €'m		Pre- exceptional €'m	Exceptional €'m (note 4)	Total €'m
Revenue	3	3,823.1	-	3,823.1		3,875.7	-	3,875.7
Earnings before interest, tax and amortisation (EBITA)	3	209.6	(34.5)	175.1		276.8	(37.1)	239.7
Intangible asset amortisation and impairment	3	(60.9)	-	(60.9)		(60.9)	(2.0)	(62.9)
Operating profit	3	148.7	(34.5)	114.2		215.9	(39.1)	176.8
Finance income	5	4.1	-	4.1		6.2	-	6.2
Finance costs	5	(24.6)	-	(24.6)		(32.5)	-	(32.5)
Share of results of equity accounted investees		61.6	(1.2)	60.4		48.6	-	48.6
Profit before taxation		189.8	(35.7)	154.1		238.2	(39.1)	199.1
Income taxes	6	(14.5)	4.2	(10.3)		(23.4)	4.5	(18.9)
Profit attributable to the equity holders of the Company		175.3	(31.5)	143.8		214.8	(34.6)	180.2
Earnings Per Share attributable to the equity holders of the Company
Basic Earnings Per Share (cent)	7			48.72				61.04
Diluted Earnings Per Share (cent)	7			48.59				60.92

 

 

 

 

 

 

Group Statement of Comprehensive Income

for the financial year ended 2 January 2021

 

	Notes	2020 €'m	2019 €'m
Profit for the year		143.8	180.2
Other comprehensive income
Items that will not be reclassified subsequently to the Group income statement:
Remeasurements on defined benefit plans, net of deferred tax		8.3	(14.1)
Share of other comprehensive income of equity accounted investees, net of deferred tax	11	7.0	(8.3)
Revaluation of equity investments at FVOCI*, net of deferred tax	10	-	(0.1)
Items that may be reclassified subsequently to the Group income statement:
Currency translation differences	10	(146.9)	46.7
Currency translation difference arising on net investment hedge	10	8.1	(2.4)
Loss on cash flow hedges, net of deferred tax		(0.9)	(2.0)
Share of other comprehensive income of equity accounted investees, net of deferred tax		(6.7)	(10.0)
Other comprehensive income for the year, net of tax		(131.1)	9.8
Total comprehensive income for the year attributable to equity holders of the Company		12.7	190.0

 

* Fair value through other comprehensive income ('FVOCI')

 

 

 

 

 

Group Balance Sheet

as at 2 January 2021

 

	Notes	2 January 2021 €'m	4 January 2020 €'m
ASSETS
Non-current assets
Property, plant and equipment		433.3	474.1
Right-of-use assets	12	90.5	-
Intangible assets		1,243.3	1,344.6
Equity accounted investees		395.9	373.2
Other financial assets		3.2	3.4
Loans to equity accounted investees		31.8	28.8
Deferred tax assets		2.4	1.9
Retirement benefit assets		2.6	2.1
		2,203.0	2,228.1
Current assets
Inventories		377.6	447.5
Trade and other receivables		319.2	432.3
Current tax assets		-	23.7
Derivative financial instruments		1.3	0.3
Cash and cash equivalents (excluding bank overdrafts)	9	164.3	269.0
		862.4	1,172.8
Total assets		3,065.4	3,400.9
EQUITY
Issued capital and reserves attributable to equity holders of the Company
Share capital and share premium		105.3	105.4
Other reserves	10	126.0	269.1
Retained earnings	11	1,380.5	1,327.4
Total equity		1,611.8	1,701.9
LIABILITIES
Non-current liabilities
Borrowings	9	458.4	514.2
Lease liabilities	12	94.4	-
Other payables		-	12.5
Retirement benefit obligations		31.9	48.4
Deferred tax liabilities		146.5	168.6
Provisions		3.3	-
		734.5	743.7
Current liabilities
Trade and other payables		441.6	512.5
Borrowings	9	199.8	369.1
Lease liabilities	12	15.8	-
Current tax liabilities		50.3	67.7
Derivative financial instruments		3.7	2.4
Provisions		7.9	3.6
		719.1	955.3
Total liabilities		1,453.6	1,699.0
Total equity and liabilities		3,065.4	3,400.9

 

 

 

 

 

 

Group Statement of Changes in Equity

for the financial year ended 2 January 2021

 

	Attributable to equity holders of the Company
	Share capital and share premium €'m	Other reserves €'m (note 10)	Retained earnings €'m (note 11)	Total €'m
Balance at 4 January 2020	105.4	269.1	1,327.4	1,701.9
Effect of adoption of IFRS 16	-	-	(12.4)	(12.4)
Balance at 5 January 2020	105.4	269.1	1,315.0	1,689.5
Profit for the year	-	-	143.8	143.8
Other comprehensive income	-	(146.4)	15.3	(131.1)
Total comprehensive income for the year	-	(146.4)	159.1	12.7
Transactions with equity holders of the Company
Contributions and distributions
Dividends	-	-	(78.6)	(78.6)
Purchase of own shares	-	(17.6)	-	(17.6)
Cancellation of own shares	(0.1)	16.7	(16.6)	-
Cost of share-based payments	-	5.2	-	5.2
Transfer on exercise, vesting or expiry of share-based payments	-	(1.0)	1.0	-
Deferred tax on share-based payments	-	-	0.6	0.6
Balance at 2 January 2021	105.3	126.0	1,380.5	1,611.8
Balance at 30 December 2018	105.4	240.9	1,242.8	1,589.1
Profit for the year	-	-	180.2	180.2
Other comprehensive income	-	32.2	(22.4)	9.8
Total comprehensive income for the year	-	32.2	157.8	190.0
Transactions with equity holders of the Company
Contributions and distributions
Dividends	-	-	(74.3)	(74.3)
Purchase of own shares	-	(7.6)	-	(7.6)
Cost of share-based payments	-	4.6	-	4.6
Transfer on exercise, vesting or expiry of share-based payments	-	(1.0)	1.0	-
Deferred tax on share-based payments	-	-	0.1	0.1
Balance at 4 January 2020	105.4	269.1	1,327.4	1,701.9

 

 

 

 

 

Group Statement of Cash Flows

for the financial year ended 2 January 2021

 

	Notes	2020 €'m	2019 €'m
Cash flows from operating activities
Cash generated from operating activities	13	319.9	285.9
Interest received		4.6	3.7
Interest paid (including leases*)		(25.0)	(32.5)
Tax paid		(22.1)	(44.6)
Net cash inflow from operating activities		277.4	212.5
Cash flows from investing activities
Payment for acquisition of subsidiaries, net of cash and cash equivalents acquired		(21.9)	(58.3)
Purchase of property, plant and equipment		(38.0)	(42.7)
Purchase of intangible assets		(26.2)	(33.6)
Interest paid in relation to property, plant and equipment	5	(0.5)	(0.7)
Proceeds from sale of property, plant and equipment		-	0.2
Dividends received from equity accounted investees		36.6	35.3
Loans advanced to equity accounted investees		(3.0)	-
Repayment of loans advanced to equity accounted investees		-	1.0
Investment in equity accounted investees		(6.6)	(48.4)
Proceeds from disposal/redemption of FVOCI financial assets		0.3	0.5
Payments for FVOCI financial assets		(0.1)	(0.4)
Net cash outflow from investing activities		(59.4)	(147.1)
Cash flows from financing activities
Purchase of own shares	10	(17.6)	(7.6)
Drawdown of borrowings		1,057.2	606.2
Repayment of borrowings		(1,222.0)	(599.9)
Payment of lease liabilities*		(19.2)	-
Dividends paid to Company shareholders	8	(78.6)	(74.3)
Net cash outflow from financing activities		(280.2)	(75.6)
Net decrease in cash and cash equivalents		(62.2)	(10.2)
Cash and cash equivalents at the beginning of the year		164.7	175.7
Cash acquired on acquisition		-	(4.2)
Effects of exchange rate changes on cash and cash equivalents		(10.9)	3.4
Cash and cash equivalents at the end of the year	9	91.6	164.7

 

* Repayment of lease liabilities capitalised under IFRS 16 during the year ended 2 January 2021 amounted to €22.0 million, of which €2.8 million (2019: nil) related to interest expense (note 5) paid which is presented in cash flows from operating activities.

 

 

 

 

 

Notes to the Financial Statements

for the financial year ended 2 January 2021

 

1.    Accounting policies

The financial information set out in this document does not constitute full statutory financial statements but has been derived from the Group financial statements for the year ended 2 January 2021 (referred to as the 2020 financial statements). The Group financial statements have been prepared in accordance with EU adopted International Financial Reporting Standards ('IFRS'), IFRIC interpretations and those parts of the Companies Act 2014, applicable to companies reporting under IFRS. The 2020 financial statements have been audited and have received an unqualified audit report. Amounts are stated in euro millions (€'m) unless otherwise stated. These financial statements are prepared for the 52-week period ended 2 January 2021. Comparatives are for the 53-week period ended 4 January 2020. The balance sheets for 2020 and 2019 have been drawn up as at 2 January 2021 and 4 January 2020 respectively.

 

The financial information has been prepared under the historical cost convention as modified by use of fair values for certain other financial assets and derivative financial instruments.

 

The Group's accounting policies which will be included in the 2020 financial statements are consistent with those as set out in the 2019 financial statements, except for changes in respect of IFRS 16 'Leases' as described herein. Other than IFRS 16, there are no new IFRS standards or amendments effective for the Group in 2020 which had a material impact on the financial statements.

 

The financial statements were approved by the Board of Directors on 23 February 2021 and signed on its behalf by D Gaynor, S Talbot, and M Garvey.

 

Going concern

Having given due regard to the considerations below, the Directors, after making appropriate enquiries, have a reasonable expectation that the Group has adequate resources to continue in operational existence for a period of at least 12 months from the date of approval of the 2020 financial statements. The Group therefore considers it appropriate to adopt the going concern basis in preparing its 2020 financial statements.

 

The 2021 budget and strategic plan for 2022 and 2023 represent the Board's best estimate of future cash flows. Having reviewed the budget and strategic plan, and applied the reverse stress test as described below, it is considered highly likely that the Group will continue to have significant financial headroom over the next 12 months from the date of approval of these financial statements.

 

At 2 January 2021, the Group had cash and cash equivalents of €164.3 million, undrawn revolving committed bank facilities of €647.8 million, undrawn bank facilities of €20.0 million renewable on an annual basis, and net debt of €493.9 million. The amount of cash, available undrawn facilities and the maturity dates of the borrowings provide confidence that the Group will be able to meet its obligations as they fall due within the next 12 months from the approval of these financial statements.

 

In the opinion of the Directors, the Group's financing covenants were fully met in 2020. The Group has reverse stress-tested its forecasts to determine the level of reduced earnings before interest, tax, depreciation and amortisation ('EBITDA') that would result in a breach of the financing covenants during the period in which the going concern basis is applied. The likelihood of this level of reduced EBITDA is considered remote based on the Group's past experience. Therefore, the Group is expected to have significant headroom against the financing covenants during the 12 months after the approval of the financial statements.

 

While the ongoing Covid-19 pandemic continues to evolve with no certainty of future trajectory or duration, the Group has been highly cash generative and profit making since the onset of the pandemic and is expected to remain in a strong financial position in the foreseeable future. The Group's strong financial position is evidenced by certain events during the year such as the completion of the Foodarom acquisition (note 14) during the third quarter of 2020, a share repurchase programme that commenced in 2020, an interim dividend, and a final dividend recommended by the Directors and subject to shareholder approval after year-end (note 8).

 

Impact of Covid-19

Critical accounting judgements and estimates

The Group has considered the impact of Covid-19 with respect to the significant judgements and estimates it makes in the application of its accounting policies. No new sources of significant judgements and estimates were identified that would have a material impact on the financial statements.

 

Judgement was applied in determining the amount of Covid-19 costs to be disclosed as exceptional items (note 4). The estimates pertaining to retirement benefit obligations incorporated the effects of Covid-19 based on actuarial advice where applicable. The estimates relating to impairment reviews of goodwill and indefinite life intangibles are described in the section "Impairment of non-financial assets" below.

 

Impairment of non-financial assets

The Group continues to actively manage its working capital including inventory. Appropriate inventory levels are held to minimise the likelihood of future potential stock obsolescence. Accordingly, the amount of write down of inventory to net realisable value recognised directly arising from the pandemic is not material.

 

In accordance with our accounting policy, other non-financial assets (such as property, plant and equipment, right-of-use assets and definite life intangible assets) were reviewed for indicators of impairment at the end of the reporting period. Where indicators of impairment are present, they are tested for impairment. Where a non-financial asset does not generate largely independent cash inflows, it is assessed for impairment on a cash-generating unit('CGU') level and included in the impairment testing of goodwill and indefinite life intangibles as described herein. The amount of impairment recognised on other non-financial assets during the period is not material.

 

In the impairment testing of goodwill and indefinite life intangibles, the Group considered the effects of the pandemic on the key assumptions for calculating value in use of the CGUs as follows:

 

Cash flows

The cash flow projections are generally based on three years of cash flows being, the 2021 budget formally approved by, and the strategic plan for 2022 and 2023 as presented to, the Board of Directors. The budget and the strategic plan incorporated the Directors' best estimate of the impact of Covid-19. Given the economic and political uncertainty resulting from Covid-19, it is difficult to ascertain the impact on the Group's prospective financial performance. The Group's budget and strategic plan reflect cash flows that management consider most likely over the three-year period.

 

Sensitivity analysis has been conducted in respect of each of the CGUs using the following sensitivity assumptions: 1% increase in the discount rate; 10% decrease in EBITDA growth; and nil terminal value growth. The Group believes that there may be increased uncertainties relating to 2021 and 2022 and a trading environment with reduced uncertainties in 2023, as global economic activities adjust to the effects of Covid-19. In view of the foregoing, as an additional analysis, the Group has increased the sensitivities over EBITDA growth in 2021 and 2022. If the Group experienced 20% decrease EBITDA growth in years 1 and 2, there would have been no change to the conclusion of the original sensitivity analysis.

 

Discount rates and growth rates

The range of discount rates applied do not reflect risks which are already reflected in the cash flow projections. The growth rates used to extrapolate cash flows beyond the budget and strategic plan period do not exceed the long-term average growth rate for the industries in which each CGU operates.

 

Impairment of trade receivables and loans to equity accounted investees, and credit risk

The Group continues to actively manage its working capital including trade receivables. Outstanding customer balances are actively monitored and reviews for indicators of impairment are done on an ongoing basis. Furthermore, trade credit is extended to customers after careful consideration and thereafter continuously monitored. Where the extension of credit is considered inappropriate, payment in advance is required. Where appropriate, the Group utilise a receivables sale programme to partially offset increases in credit terms for certain trade receivables. Regarding the loans to joint ventures, the Group continues to monitor the joint ventures' ability to repay them.

 

The Group has adjusted the historical loss rates that are used in the calculation of expected credit losses (ECL) on trade receivables and loans to equity accounted investees to reflect future economic conditions (including the effects of Covid-19) where appropriate. The adjustment took into account the Group's credit exposure to the debtors, their credit quality and associated loss rates based on external information from credit rating companies such as Standard and Poor's. There were no significant judgements or estimates made in the calculation that would have a material impact on the Group.

 

Hedge accounting

The Group's carrying amount of derivatives for which hedge accounting is applied is not material. Notwithstanding the foregoing, the timing and volume of forecasted transactions hedged via cash flow hedges remains largely highly probable. Therefore no material hedge ineffectiveness has been recognised in the year ended 2 January 2021.

 

Liquidity and cash flow risk

In 2020, the Group completed the financing of US$555 million* of debt facilities maturing between January 2024 and December 2031 to optimise the Group's liquidity and cash flows in light of the Covid-19 environment. These facilities were used to repay US$351 million of shorter maturing indebtedness in December 2020 and will additionally be used to repay US$156 million of indebtedness maturing June 2021. The Group has no other committed facilities due prior to January 2024. Accordingly, the repayment profile of the Group's borrowings as at 2 January 2021 is predominantly non-current with liquidity and cash flow risk being minimised.

 

In the opinion of the Directors, the Group fully complied with the financing covenants attached to its borrowings during the year ended 2 January 2021 and is expected to continue to do so with adequate headroom against the covenants over the next 12 months from the approval of these financial statements. Refer to the going concern section for more details.

 

* This comprised US$175 million or €142.6 million of private placement debt facility which commenced in December 2020, US$200 million of private placement debt facilities with a delayed drawdown until 15 March 2021, and US$180 million of bank facilities of which €55.9 million was drawn down and included within non-current bank borrowings as at 2 January 2021.

 

Others

The Group did not avail of government support and assistance during the year ended 2 January 2021. The Covid-19 related rent concessions received by the Group during the year ended 2 January 2021 were not material. Accordingly, the Group did not early adopt the amendment to IFRS 16 'Covid-19-Related Rent Concessions'.

 

Adoption of new and amended standards and interpretations

The Group has adopted the following standards, interpretations and amendments to existing standards during the financial year:

 

IFRS 16 'Leases'

The Group adopted the modified retrospective approach to transition permitted by the standard in which the cumulative effect of initially applying the standard is recognised in opening retained earnings at 5 January 2020. Under this approach, the comparatives for the 2019 reporting period are not restated. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 5 January 2020.

 

The Group recognised right-of-use assets and lease liabilities for those leases previously classified as operating leases, except for short-term leases and leases of low-value assets. The right-of-use assets for leases were recognised based on the carrying amount as if the standard had always been applied, apart from the use of incremental borrowing rate at the date of initial application. Lease liabilities were recognised based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application. There were no leases previously classified as finance leases as at 4 January 2020.

 

In applying IFRS 16 for the first time, the Group has availed of practical expedients/exemptions including:

•     applying a single discount rate to a portfolio of leases with reasonably similar characteristics

•     relying on previous assessments on whether leases are onerous as an alternative to performing an impairment review

•     accounting for operating leases with a remaining lease term of within 12 months of 5 January 2020 as short-term leases

•     using hindsight in determining the lease term where the contract contains options to extend or terminate the lease

•     not reassessing whether a contract is, or contains a lease at the date of initial application

•     not making any adjustments on transition for leases for which the underlying asset is of low value

 

The impact of the adoption of IFRS 16 on the 2020 financial year is as follows:

•     right-of-use asset and lease liabilities: initial recognition of €106.4 million and €129.6 million respectively as at 5 January 2020

•     non-current other payables*: decrease of €12.5 million as at 5 January 2020

•     depreciation charge: increase of €18.0 million

•     finance costs: increase of €2.8 million

•     earnings used to calculate EPS: decrease of €0.4 million**

 

*      Relate to lease incentives on non-cancellable operating leases under IAS 17 as at 4 January 2020.

**    Same impact on the adjusted earnings used to calculate adjusted EPS. The impact of the adoption of IFRS 16 on operating profit for the year ended 2 January 2021 is an increase of €2.4 million and has been calculated based on the portfolio of leases which existed at 4 January 2020.

 

The lease liabilities as at 5 January 2020 can be reconciled to the operating lease commitments as of 4 January 2020 as follows:

		2020 €'m
Operating lease commitments disclosed as at 4 January 2020		128.8
Less: short-term leases recognised as expense		(0.7)
Add: adjustments as a result of a different treatment of extension and termination options		16.8
Total future lease payments		144.9
Effect of discounting (lessee's weighted average incremental borrowing rate of 2.29% on 5 January 2020)		(15.3)
Lease liability recognised as at 5 January 2020		129.6

 

No significant judgements or estimates were made in applying IFRS 16 that would have a material impact on the Group. However, it is noted that estimation is involved in determining IBR which is used to measure lease liabilities. The Group estimates the IBR based on the currency and country/region in which a lease is based, the lease term, and the credit quality of the Group. In addition, judgement is involved in determining the lease term where there are extension or termination options. In determining the lease term, the Group considers all relevant factors that create an economic incentive for it to exercise the renewal or not exercise the termination of the lease such as the length of the non-cancellable period of a lease, costs relating to the termination of a lease, and the amount of leasehold improvements that have been or are expected to be undertaken. The Group assesses at lease commencement date whether it is reasonably certain to exercise an extension option or not to exercise a termination option for the lease. The Group reassesses whether it is reasonably certain to exercise or not to exercise them if there is a significant event or change in circumstances within its control.

 

IFRIC 23 'Uncertainty over Income Tax Treatments'

This interpretation sets out how to determine taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates when there is uncertainty over income tax treatments under IAS 12 'Income taxes'. The adoption of this interpretation did not have a material impact on the financial statements as the Group already applied the principles of IFRIC 23 in determining its provisions for uncertain tax treatments.

 

Amendments to IFRS 3 'Business Combinations'

The amendments clarify the definition of a business to help entities determine whether an acquired set of activities and assets is a business or not. The adoption of the amendments did not have a material impact on the financial statements.

 

New and amended standards and interpretations that are not yet effective

The Group has not applied certain new standards, amendments to existing standards and interpretations that have been issued but are not yet effective. The most significant of which are as follows:

 

Amendment to IFRS 16 'Covid-19-Related Rent Concessions' (EU effective date: on or after 1 June 2020)

As a practical expedient, a lessee may elect not to assess whether a Covid-19 related rent concession from a lessor is a lease modification. A lessee that makes this election accounts for any change in lease payments resulting from the Covid-19 related rent concession the same way it would account for the change under IFRS 16, if the change were not a lease modification. The Group does not expect the adoption of this amendment to have a material impact on the financial statements, as the Covid-19 related rent concessions received by the Group were not material.

 

Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 'Interest Rate Benchmark Reform - Phase 2' (EU effective date: on or after 1 January 2021)

The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered rate ('IBOR') is replaced with an alternative nearly risk-free interest rate. The reliefs include practical expedient for changes in the basis for determining the contractual cash flows as a result of IBOR reform, relief from discontinuing hedging relationships and relief relating to separately identifiable risk components. Additional disclosures relating to the interest rate benchmark reform are required. The Group is currently evaluating the impact of the amendments on future periods.

 

Amendments to IAS 16 'Property, Plant and Equipment: Proceeds before Intended Use' (IASB effective date: on or after 1 January 2022 - not yet endorsed)

The amendment prohibits entities from deducting from the cost of an item of property, plant and equipment, any proceeds of the sale of items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling such items and the costs of producing those items in profit or loss. The Group is currently evaluating the impact of the amendments on future periods.

 

Other changes to IFRS have been issued but are not yet effective for the Group. However, they are either not expected to have a material impact on the Group or they are not currently relevant for the Group.

2.    Segment information

In accordance with IFRS 8 'Operating Segments', the Group, including its joint ventures, has identified three reportable segments as follows:

 

Glanbia Performance Nutrition

Glanbia Performance Nutrition manufactures and sells sports nutrition and lifestyle nutrition products through a variety of channels including specialty retail, e-Commerce, Food/Drug/Mass/Club (FDMC), and gyms in a variety of formats, including powders, Ready-to-Eat (bars and snacking foods) and Ready-to-Drink beverages.

 

Glanbia Nutritionals

Glanbia Nutritionals manufactures and sells cheese, dairy and non-dairy nutritional and functional ingredients, and vitamin and mineral premixes targeting the increased market focus on health and nutrition.

 

Glanbia Ireland

Glanbia Ireland is the largest milk processor in Ireland producing a range of value added dairy ingredients and consumer products. Glanbia Ireland is also a large scale seller of animal nutrition and fertiliser as well as having a chain of agricultural retail outlets in Ireland. Glanbia Ireland is an equity accounted investee and the amounts stated represent the Group's share.

 

Other segments and unallocated

All other segments and unallocated include both the results of other equity accounted investees who manufacture and sell cheese and dairy ingredients and unallocated corporate costs. These investees did not meet the quantitative thresholds for reportable segments in 2020 or 2019.

 

These segments align with the Group's internal financial reporting system and the way in which the Chief Operating Decision Maker ('CODM') assesses performance and allocates the Group's resources. Each segment is reviewed in its totality by the CODM. The CODM assesses the trading performance of operating segments based on a measure of earnings before interest, tax, amortisation and exceptional items. Given that net finance costs and income tax are managed on a centralised basis, these items are not allocated between operating segments for the purposes of the information presented to the CODM and are accordingly omitted from the detailed segmental analysis below.

 

Amounts stated for equity accounted investees represents the Group's share.

 

Pre-exceptional segment results are as follows:

 

2020	Glanbia Performance Nutrition €'m	Glanbia Nutritionals €'m	Glanbia Ireland €'m	Total reportable segments €'m	All other segments and unallocated €'m	Total Group €'m
Total gross segment revenue	1,138.1	2,706.5	-	3,844.6	-	3,844.6
Inter-segment revenue	(0.1)	(21.4)	-	(21.5)	-	(21.5)
Revenue	1,138.0	2,685.1	-	3,823.1	-	3,823.1
Total Group earnings before interest, tax, amortisation and exceptional items	91.2	118.4	-	209.6	-	209.6
Share of results of equity accounted investees	-	-	23.9	23.9	37.7	61.6
2019
Total gross segment revenue	1,363.8	2,547.8	-	3,911.6	-	3,911.6
Inter-segment revenue	-	(35.9)	-	(35.9)	-	(35.9)
Revenue	1,363.8	2,511.9	-	3,875.7	-	3,875.7
Total Group earnings before interest, tax, amortisation and exceptional items	146.4	130.4	-	276.8	-	276.8
Share of results of equity accounted investees	-	-	22.2	22.2	26.4	48.6

 

Included in external revenue are related party sales between Glanbia Nutritionals and Glanbia Ireland of €0.6 million (2019: €0.4 million). Intersegment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties.

 

Revenue of approximately €513.7 million (2019: €405.6 million) and €681.2 million (2019: €705.4 million) is derived from two external customers respectively within the Glanbia Nutritionals segment.

 

Segment earnings before interest, tax, amortisation and exceptional items are reconciled to reported profit before tax and profit after tax in the Group income statement.

 

Other pre-exceptional segment information is as follows:

 

2020		Glanbia Performance Nutrition €'m	Glanbia Nutritionals €'m	Glanbia Ireland €'m	Total reportable segments €'m	All other segments and unallocated €'m	Total Group €'m
Depreciation and impairment of PP&E and ROU assets		25.4	38.5	-	63.9	-	63.9
Amortisation and impairment of intangible assets		44.2	16.7	-	60.9	-	60.9
Capital expenditure - additions		37.4	40.5	-	77.9	3.9	81.8
Capital expenditure - business combinations		-	52.6	-	52.6	-	52.6
2019
Depreciation and impairment of PP&E		17.5	30.6	-	48.1	-	48.1
Amortisation and impairment of intangible assets		44.3	16.6	-	60.9	-	60.9
Capital expenditure - additions		23.6	47.1	-	70.7	4.6	75.3
Capital expenditure - business combinations		1.2	51.5	-	52.7	-	52.7

 

The segment assets and liabilities are as follows:

 

2020		Glanbia Performance Nutrition €'m	Glanbia Nutritionals €'m	Glanbia Ireland €'m	Total reportable segments €'m	All other segments and unallocated €'m	Total Group €'m
Segment assets		1,481.2	943.6	246.2	2,671.0	394.4	3,065.4
Segment liabilities		321.4	344.8	-	666.2	787.4	1,453.6
2019
Segment assets		1,709.1	977.6	227.0	2,913.7	487.2	3,400.9
Segment liabilities		350.8	331.8	-	682.6	1,016.4	1,699.0

 

Geographical information

Non-current assets

The total of non-current assets, other than financial instruments, deferred tax assets, and retirement benefit assets attributable to the country of domicile and all foreign countries of operation for which non-current assets exceed 10% of total Group non-current assets are set out below.

 

	2020 €'m	2019 €'m
Ireland (country of domicile)	880.4	892.3
US	1,101.3	1,127.4
Others	181.3	172.2
Total	2,163.0	2,191.9

 

Revenue

Revenue from external customers is allocated to geographical areas based on the place of delivery or collection of the products sold as agreed with customers as opposed to the end use market where the product may be consumed.

 

	2020				2019
	Glanbia Performance Nutrition €'m	Glanbia Nutritionals €'m	Total €'m		Glanbia Performance Nutrition €'m	Glanbia Nutritionals €'m	Total €'m
North America
-          US	802.8	2,374.7	3,177.5		941.0	2,185.4	3,126.4
-          Canada	14.7	53.4	68.1		15.9	58.2	74.1
Europe
-          Ireland (country of domicile)	3.0	1.7	4.7		3.0	2.3	5.3
-          UK	81.1	17.3	98.4		92.3	15.4	107.7
-          Netherlands	52.2	27.7	79.9		55.5	29.0	84.5
-          Germany	10.6	19.0	29.6		11.3	19.4	30.7
-          Other	69.9	29.8	99.7		80.6	29.6	110.2
Asia Pacific & LATAM
-          China	13.6	57.5	71.1		20.1	51.1	71.2
-          Australia	23.1	5.6	28.7		27.3	7.3	34.6
-          Japan	4.3	26.2	30.5		4.7	24.9	29.6
-          New Zealand	5.6	7.9	13.5		5.5	8.2	13.7
-          Other	47.1	57.5	104.6		88.5	76.2	164.7
Rest of World	10.0	6.8	16.8		18.1	4.9	23.0
Total	1,138.0	2,685.1	3,823.1		1,363.8	2,511.9	3,875.7

 

Disaggregation of revenue

Revenue is disaggregated based on the primary geographical markets in which the Group operates (see table within Geographical Information). Revenue has also been disaggregated based on the Group's internal reporting structures, the timing of revenue recognition, and channel mix as set out in the following tables.

 

	2020				2019
	Glanbia Performance Nutrition €'m	Glanbia Nutritionals €'m	Total €'m		Glanbia Performance Nutrition €'m	Glanbia Nutritionals €'m	Total €'m
North America Performance Nutrition	434.8	-	434.8		538.3	-	538.3
North America Lifestyle	357.3	-	357.3		392.0	-	392.0
International	270.9	-	270.9		358.7	-	358.7
Direct-to-Consumer	75.0	-	75.0		74.8	-	74.8
Nutritional Solutions	-	746.8	746.8		-	744.9	744.9
US Cheese	-	1,938.3	1,938.3		-	1,767.0	1,767.0
Total	1,138.0	2,685.1	3,823.1		1,363.8	2,511.9	3,875.7
Products transferred at point in time	1,138.0	2,685.1	3,823.1		1,363.8	2,511.9	3,875.7
Products transferred over time	-	-	-		-	-	-
Total	1,138.0	2,685.1	3,823.1		1,363.8	2,511.9	3,875.7

 

Glanbia Performance Nutrition	2020 €'m	2019 €'m
Distributor	180.3	277.4
Food, Drug, Mass, Club (FDMC)	428.0	456.0
Online	372.8	363.7
Specialty	156.9	266.7
Total	1,138.0	1,363.8

 

The disaggregation of revenue by channel mix is most relevant for Glanbia Performance Nutrition.

 

3.    Operating profit

			2020				2019
		Pre- exceptional €'m	Exceptional €'m	Total €'m		Pre- exceptional €'m	Exceptional €'m	Total €'m
Revenue		3,823.1	-	3,823.1		3,875.7	-	3,875.7
Cost of goods sold		(3,134.1)	(12.6)	(3,146.7)		(3,095.8)	(19.1)	(3,114.9)
Gross profit		689.0	(12.6)	676.4		779.9	(19.1)	760.8
Selling and distribution expenses		(310.8)	(3.1)	(313.9)		(338.5)	-	(338.5)
Administration expenses		(164.0)	(18.8)	(182.8)		(162.7)	(18.0)	(180.7)
Net impairment losses on financial assets		(4.6)	-	(4.6)		(1.9)	-	(1.9)
Earnings before interest, tax and   amortisation (EBITA)		209.6	(34.5)	175.1		276.8	(37.1)	239.7
Intangible asset amortisation and impairment		(60.9)	-	(60.9)		(60.9)	(2.0)	(62.9)
Operating profit		148.7	(34.5)	114.2		215.9	(39.1)	176.8

 

4.    Exceptional items

The nature of the total exceptional operating loss is as follows:

 

	Notes	2020 €'m	2019 €'m
Organisation redesign costs	(a)	31.2	12.7
Covid-19 costs	(b)	3.7	-
Acquisition integration costs	(c)	3.4	6.8
Legal settlement gain	(d)	(3.4)	-
Asset impairments	(e)	(0.4)	17.3
Brexit related costs	(f)	-	2.3
Total exceptional charge before taxation		34.5	39.1
Share of results of equity accounted investees	(b)	1.2	-
Exceptional tax credit	6	(4.2)	(4.5)
Total exceptional charge after taxation		31.5	34.6

 

Details of the exceptional items are as follows:

 

(a)      Organisation redesign costs primarily relates to a fundamental reorganisation of the GPN segment which commenced in 2019. This global transformation programme aims to realign operating and supply chain structures in support of growth ambitions, sharpen focus on brands and optimise routes-to-market across non-US markets to drive greater efficiencies, improve margin and deliver top line growth. Costs incurred to date includes people and property related costs, professional consulting fees and costs associated with terminating and exiting certain contractual arrangements. Given the scale of this project, further costs are anticipated into 2021 with full completion of the project anticipated by early 2022.

(b)      Covid-19 costs relate to the costs of dealing with this pandemic in the first half of the year by the Group and its joint ventures and include the costs of implementing measures to protect people, incremental payments to front line workers and other incidental labour related costs directly associated with the onset of this global pandemic. Refer to note 1 for considerations of Covid-19 on the financial statements.

(c)      Acquisition integration costs comprise costs relating to the integration and restructuring of acquired businesses and the transaction costs incurred in completing the current year acquisition. The charge primarily comprises professional fees and related costs crystallised on post-acquisition integration.

(d)      Legal settlement gain relates to net compensation received following the successful conclusion of a legacy case.

(e)      Prior year asset impairments relate to the write down of inventory, development assets and fixed assets to their net realisable value. These impairments primarily related to the rationalisation and simplification of certain product lines and related assets in the GPN business. The credit in 2020 relates to the release of a provision not required on the disposal of certain inventory items. No similar costs were incurred in 2020.

(f)       Prior year Brexit related costs were incurred in preparing the organisation for the departure of the United Kingdom from the European Union. Costs incurred included professional fees and increased storage and production costs as the Group sought to mitigate the potential risks related to Brexit during 2019. No further significant costs were incurred during 2020.

 

During 2020 there were cash outflows of €23.5 million and €6.0 million in respect of exceptional charges recognised in FY 2020 and FY 2019 respectively. During 2019 there were cash outflows of €12.0 million in respect of exceptional charges recognised in FY 2019.

 

5.    Finance income and costs

	Notes	2020 €'m	2019 €'m
Finance income
Interest income on loans at amortised cost to related parties		1.3	1.3
Interest income on deposits		2.2	4.7
Net interest income on swaps		0.6	0.2
Total finance income	13	4.1	6.2
Finance costs
Bank borrowing costs		(12.8)	(24.0)
Facility fees including cost amortisation		(1.7)	(1.1)
Finance cost of private placement debt		(7.3)	(7.4)
Interest expense on lease liabilities	12	(2.8)	-
Total finance costs	13	(24.6)	(32.5)
Net finance costs		(20.5)	(26.3)

 

Net finance costs do not include bank borrowing costs of €0.5 million (2019: €0.7 million) attributable to the acquisition, construction or production of a qualifying asset, which have been capitalised. Interest is capitalised at the Group's average interest rate for the period of 2.9% (2019: 3.4%). Where relevant, tax deduction for capitalised interest was taken in accordance with Sec 81(3), TCA 1997. Tax relief in relation to capitalised interest is nil (2019: nil).

 

6.    Income taxes

		2020 €'m	2019 €'m
Current tax Irish current tax charge		5.7	3.2
Adjustments in respect of prior years		0.1	0.9
Irish current tax for the year		5.8	4.1
Foreign current tax		14.8	16.0
Adjustments in respect of prior years		(1.4)	(0.9)
Foreign current tax for the year		13.4	15.1
Total current tax		19.2	19.2
Deferred tax
Deferred tax - current year		(11.6)	(1.2)
Adjustments in respect of prior years		2.7	0.9
Total deferred tax		(8.9)	(0.3)
Tax charge		10.3	18.9
The tax credit on exceptional items included in the above amounts is as follows:
	Notes	2020 €'m	2019 €'m
Current tax credit on exceptional items		(4.2)	(4.4)
Deferred tax credit on exceptional items		-	(0.1)
Total tax credit on exceptional items for the year	4	(4.2)	(4.5)

 

The net tax credit on exceptional items has been disclosed separately above as it relates to costs and income which have been presented as exceptional.

 

The tax on the Group's profit before tax differs from the theoretical amount that would arise applying the corporation tax rate in Ireland, as follows:

 

	Notes	2020 €'m	2019 €'m
Profit before tax		154.1	199.1
Income tax calculated at Irish rate of 12.5% (2019: 12.5%)		19.3	24.9
Earnings at higher Irish rates		2.0	0.2
Difference due to overseas tax rates (capital and trading)		8.1	4.0
Adjustment to tax charge in respect of previous periods		1.4	0.9
Tax on share of results of equity accounted investees included in profit before tax		(7.6)	(6.2)
Other reconciling items		(12.9)	(4.9)
Total tax charge	13	10.3	18.9

 

Factors that may affect future tax charges and other disclosure requirements

The total tax charge in future periods will be affected by any changes to the applicable tax rates in force in jurisdictions in which the Group operates and other relevant changes in tax legislation, including amendments impacting on the excess of tax depreciation over accounting depreciation. The total tax charge of the Group may also be influenced by the effects of corporate development activity and the resolution of uncertain tax positions where the final outcome of those matters is different than the amounts recorded.

 

 

7.    Earnings Per Share

Basic

Basic Earnings Per Share is calculated by dividing the net profit attributable to the equity holders of the Company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the Group and held as own shares. The weighted average number of ordinary shares in issue used in the calculation of Basic Earnings Per Share is 295,173,279 (2019: 295,215,046).

 

	2020	2019
Profit after tax attributable to equity holders of the Company (€'m)	143.8	180.2
Basic Earnings Per Share (cent)	48.72	61.04

 

Diluted

Diluted Earnings Per Share is calculated by adjusting the weighted average number of ordinary shares in issue to assume conversion of all potential dilutive ordinary shares. Share options and share awards are the Company's only potential dilutive ordinary shares.

 

The share awards, which are performance based, are treated as contingently issuable shares, because their issue is contingent upon satisfaction of specified performance conditions, as well as the passage of time. Contingently issuable shares are included in the calculation of Diluted Earnings Per Share to the extent that conditions governing exercisability have been satisfied, as if the end of the reporting period were the end of the vesting period. The number of share options represents the number expected to be exercised.

 

		2020	2019
Weighted average number of ordinary shares in issue		295,173,279	295,215,046
Shares deemed to be issued for no consideration in respect of:
- Share awards		762,861	543,676
- Share options		22,031	27,441
Weighted average number of shares used in the calculation of Diluted Earnings Per Share		295,958,171	295,786,163
Diluted Earnings Per Share (cent)		48.59	60.92

 

8.    Dividends

The dividends paid and recommended on ordinary share capital are as follows:

	Notes	2020 €'m	2019 €'m
Equity dividends to shareholders
Final - paid 15.94c per ordinary share (2019: 14.49c)		47.2	42.9
Interim - paid 10.68c per ordinary share (2019: 10.68c)		31.6	31.6
Total		78.8	74.5
Reconciliation to Group statement of cash flows and statement of changes in equity
Dividends to shareholders		78.8	74.5
Waived dividends in relation to own shares		(0.2)	(0.2)
Total dividends paid to equity holders of the Company		78.6	74.3
Equity dividends recommended
Final 2020 - proposed 15.94c per ordinary share (2019: 15.94c)	15	46.9	47.2

 

9.    Net debt

		2020 €'m	2019 €'m
Non-current Bank borrowings		315.8	374.3
Private placement debt		142.6	139.9
		458.4	514.2
Current Bank borrowings		-	264.8
Private placement debt		127.1	-
Bank overdrafts		72.7	104.3
		199.8	369.1
Total borrowings		658.2	883.3

 

Net debt is a non-IFRS measure which we provide to investors as we believe they find it useful. It is also used to calculate leverage under the Group's financing arrangements, as defined within covenants. Net debt comprises the following:

 

		2020 €'m	2019 €'m
Private placement debt		269.7	139.9
Bank borrowings		137.7	151.6
Not subject to interest rate changes*		407.4	291.5
Bank borrowings		178.1	487.5
Cash and cash equivalents net of bank overdrafts		(91.6)	(164.7)
Subject to interest rate changes*		86.5	322.8
		493.9	614.3

 

* Taking into account of contractual repricing dates at the reporting date.

 

		2020 €'m	2019 €'m
Cash at bank and in hand		164.2	260.1
Short term bank deposits		0.1	8.9
Cash and cash equivalents in the Group balance sheet		164.3	269.0
Bank overdrafts used for cash management purposes		(72.7)	(104.3)
Cash and cash equivalents in the Group statement of cash flows		91.6	164.7

 

10.  Other reserves

 

	Capital reserve €'m	Merger reserve €'m	Currency reserve €'m	Hedging reserve €'m	Cost of hedging reserve €'m	FVOCI reserve €'m	Own shares €'m	Share- based payment reserve €'m	Total €'m
Balance at 5 January 2020	2.8	113.1	170.7	(13.0)	-	(0.2)	(14.0)	9.7	269.1
Currency translation differences	-	-	(146.9)	-	-	-	-	-	(146.9)
Net investment hedge	-	-	8.1	-	-	-	-	-	8.1
Revaluation - gross	-	-	-	(9.8)	0.5	-	-	-	(9.3)
Reclassification to profit or loss - gross	-	-	-	(0.2)	-	-	-	-	(0.2)
Reclassification to inventory - gross	-	-	-	-	(0.5)	-	-	-	(0.5)
Deferred tax	-	-	-	2.4	-	-	-	-	2.4
Net change in OCI	-	-	(138.8)	(7.6)	-	-	-	-	(146.4)
Purchase of own shares	-	-	-	-	-	-	(17.6)	-	(17.6)
Cancellation of own share	0.1	-	-	-	-	-	16.6	-	16.7
Cost of share-based payments	-	-	-	-	-	-	-	5.2	5.2
Transfer on exercise, vesting or expiry of share-based payments	-	-	-	-	-	-	3.6	(4.6)	(1.0)
Balance at 2 January 2021	2.9	113.1	31.9	(20.6)	-	(0.2)	(11.4)	10.3	126.0
Balance at 30 December 2018	2.8	113.1	126.4	(1.0)	-	(0.1)	(14.4)	14.1	240.9
Currency translation differences	-	-	46.7	-	-	-	-	-	46.7
Net investment hedge	-	-	(2.4)	-	-	-	-	-	(2.4)
Revaluation - gross	-	-	-	(16.9)	-	(0.2)	-	-	(17.1)
Reclassification to profit or loss - gross	-	-	-	1.3	-	-	-	-	1.3
Deferred tax	-	-	-	3.6	-	0.1	-	-	3.7
Net change in OCI	-	-	44.3	(12.0)	-	(0.1)	-	-	32.2
Purchase of own shares	-	-	-	-	-	-	(7.6)	-	(7.6)
Cost of share-based payments	-	-	-	-	-	-	-	4.6	4.6
Transfer on exercise, vesting or expiry of share-based payments	-	-	-	-	-	-	8.0	(9.0)	(1.0)
Balance at 4 January 2020	2.8	113.1	170.7	(13.0)	-	(0.2)	(14.0)	9.7	269.1

 

11.  Retained earnings

 

		2020 €'m	2019 €'m
At the beginning of the year		1,327.4	1,242.8
Effect of adoption of IFRS 16*		(12.4)	-
At the beginning of the year, after the effect of adoption of IFRS 16		1,315.0	1,242.8
Profit for the year		143.8	180.2
Other comprehensive income
- Remeasurement on defined benefit plans		8.8	(14.6)
- Deferred tax on remeasurements on defined benefit plans		(0.5)	0.5
- Share of remeasurements on defined benefit plans from equity accounted investees, net of deferred tax		7.0	(8.3)
Net change in OCI		15.3	(22.4)
Dividends		(78.6)	(74.3)
Cancellation of own shares		(16.6)	-
Transfer on exercise, vesting or expiry of share-based payments		1.0	1.0
Deferred tax on share-based payments		0.6	0.1
At the end of the year		1,380.5	1,327.4

 

* Includes the impact of deferred tax.

 

12.  Leasing

The movement in right-of-use assets during the year is as follows:

 

	Notes	Land and buildings €'m	Plant and equipment €'m	Motor vehicles €'m	Total €'m
Year ended 2 January 2021
Opening carrying amount		-	-	-	-
Effect of adopting IFRS 16		97.9	5.2	3.3	106.4
Exchange difference		(7.3)	(0.4)	(0.3)	(8.0)
Acquisitions	14	0.6	-	-	0.6
Additions		11.9	2.6	1.9	16.4
Disposals		(4.4)	(1.3)	(0.2)	(5.9)
Impairment		(1.0)	-	-	(1.0)
Depreciation charge		(13.7)	(2.7)	(1.6)	(18.0)
Closing carrying amount		84.0	3.4	3.1	90.5
At 2 January 2021
Cost		97.5	5.6	4.6	107.7
Accumulated depreciation		(13.5)	(2.2)	(1.5)	(17.2)
Carrying amount		84.0	3.4	3.1	90.5

 

Lease liabilities shown in the Group balance sheet are as follows:

 

		2020 €'m
Current		15.8
Non-current		94.4
Total		110.2

 

Amounts recognised in the Group income statement included the following:

 

	Notes	2020 €'m
Depreciation charge of right-of-use assets		18.0
Impairment of right-of-use assets		1.0
Interest expense on lease liabilities	5	2.8
Expense relating to short-term leases		2.4
Expense relating to variable lease payments not included in lease liabilities		0.5

 

There was no income from subleasing and gains/losses on sale and leaseback transactions. The total cash outflow for lease payments during the year was €21.9 million. At 2 January 2021, the Group was committed to €1.0 million for short-term leases.

 

Certain building leases contain extension options exercisable by the Group. As at 2 January 2021, undiscounted potential future lease payments of €90.0 million have not been included in lease liabilities because it is not reasonably certain that the extension options, €77.1 million of which relate to periods more than five years from the reporting date, will be availed of. The undiscounted future lease payments relating to leases that have not yet commenced which the Group is committed as at 2 January 2021 were not material. The effect of excluding future cash outflows arising from variable lease payments, termination options, and residual value guarantees from lease liabilities is not material for the Group.

 

13.  Cash generated from operating activities

	Notes	2020 €'m	2019 €'m
Profit after taxation		143.8	180.2
Income taxes	6	10.3	18.9
Net write down of inventories (pre-exceptional)		23.0	5.3
Non-cash movement in allowance for impairment of receivables		5.2	1.8
Non-cash element of exceptional charge before taxation		12.2	27.1
Non-cash movement in provisions (pre-exceptional)		3.3	(0.9)
Non-cash movement on cross currency swaps		(0.7)	0.8
Non-cash movement on disposal of leases		(0.7)	-
Share of results of equity accounted investees (pre-exceptional)		(61.6)	(48.6)
Depreciation of tangible assets		45.9	48.1
Amortisation of intangible assets		60.9	60.9
Depreciation of right-of-use assets		18.0	-
Cost of share-based payments		5.2	4.6
Difference between pension charge and cash contributions		(7.2)	(7.6)
Loss on disposal of property, plant and equipment (pre-exceptional)		0.8	0.2
Finance income	5	(4.1)	(6.2)
Finance expense	5	24.6	32.5
Operating cash flows before movement in working capital		278.9	317.1
Decrease/(increase) in inventories		18.7	(61.4)
Decrease in short-term receivables		80.7	1.4
(Decrease)/increase in short-term liabilities		(55.9)	31.3
Decrease in provisions		(2.5)	(2.5)
Cash generated from operating activities		319.9	285.9

 

14.  Business combinations

On 17 August 2020, the Group acquired 100% of the voting shares of Foodarom Group Inc., Foodarom USA, Inc. and Foodarom Germany GmbH (collectively known as 'Foodarom'). Foodarom is a Canadian headquartered flavour solutions business, which is a complementary acquisition for the Group and forms part of the Glanbia Nutritionals segment. The acquisition will strengthen the Group's capability in flavours and nutritional solutions, growing position in flavours, and enhance its ability to provide optimised ingredient systems to its customers. The goodwill relates to the acquired workforce, the expectation that the business will give rise to synergies across the Glanbia Nutritionals segment, will generate future sales beyond the existing customer base, as well as the opportunity to expand the business into new markets, where there are no existing customers, and further complements the recipes and know-how across the Glanbia Nutritionals segment. Goodwill of €10.5 million is not deductible for tax purposes.

 

Details of the net assets acquired and goodwill arising from the acquisition are as follows:

		Total €'m
Purchase consideration - cash paid		21.9
Contingent consideration		18.0
Total consideration		39.9
Less: Fair value of net assets acquired		(16.9)
Goodwill		23.0
The fair value of assets and liabilities arising from the acquisition are as follows:
	Notes	Total €'m
Property, plant and equipment		7.0
Right-of-use assets		0.6
Software		0.2
Intangible assets - brands		4.6
Intangible assets - customer relationships		3.3
Intangible assets - recipes and know-how		13.9
Inventories		3.2
Trade and other receivables		3.2
Trade and other payables		(5.5)
Loans		(12.2)
Lease liabilities	12	(0.6)
Deferred tax liabilities		(0.8)
Fair value of net assets acquired		16.9

 

The contingent consideration arrangement requires the Group to pay the former owners of Foodarom an earnout if a pre-defined earnings threshold is exceeded within a defined period post acquisition. Under the acquisition agreement, the undiscounted amount of future payments for which the Group may be liable ranges from nil to €18.0 million.

 

The fair value of the contingent consideration was estimated by calculating the present value of the future expected payments. As the contingent consideration is due to be paid within 12 months, the effect of discounting is not material. The main significant unobservable input in the calculation is the forecast EBITDA of Foodarom over the relevant period. As it is deemed highly probable that the higher end of the EBITDA range will be met, the Group have assumed that the upper limit of the earnout will be payable. A 5% increase in the forecast EBITDA would not change the fair value of the contingent consideration. A 5% decrease in forecast EBITDA would result in a decrease in fair value of the contingent consideration by €2.8 million.

 

The fair value of Foodarom's trade and other receivables at the acquisition date amounted to €3.2 million. The gross contractual amount for receivables due is €3.2 million which is expected to be received in full. Acquisition-related costs of €1.6 million incurred primarily on professional fees are included in administrative expenses.

 

Combined impact of acquisitions

The revenue and profit before taxation and exceptional items of the Group, including the post acquisition impact of acquisitions completed during the year ended 2 January 2021, were as follows:

	2020 Acquisitions €'m	Group excluding acquisitions €'m	Consolidated group including acquisitions €'m
Revenue	9.9	3,813.2	3,823.1
Profit before taxation	0.8	189.0	189.8

 

The revenue and profit before taxation and exceptional items of the Group for the year ended 2 January 2021 determined in accordance with IFRS 3 as though the acquisition date for all business combinations effected during the year had been at the beginning of the year would be as follows:

	2020 Acquisitions €'m	Group excluding acquisitions €'m	Pro-forma consolidated group €'m
Revenue	24.7	3,813.2	3,837.9
Profit before taxation	0.9	189.0	189.9

 

15.  Events after the reporting period

See note 8 for the final dividend, recommended by the Directors. Subject to shareholder approval, this dividend will be paid on 7 May 2021 to shareholders on the register of members on 26 March 2021, the record date.

 

Subsequent to the year end, the Society, who is the largest shareholder of the Company, announced that it will further reduce its representation on the Board of the Company, in order to facilitate the appointment of additional independent non-executive directors. Accordingly, the current Society representation on the Board will reduce from seven to three directors by June 2023. In addition, the overall board size of the Company will reduce from 15 to 13 by 2023.

 

16.  Statutory financial statements

The financial information in this preliminary announcement does not constitute the full statutory financial statements of Glanbia plc (the 'Company'), a copy of which is required to be annexed to the Company's annual return filed with the Companies Registration Office and will be published on www.glanbia.com. A copy of the full statutory financial statements in respect of the financial year ended 2 January 2021 will be annexed to the Company's annual return for 2020. The auditors of the Company have made a report, without any qualification, on their audit of the financial statements of the Group and Company in respect of the financial year ended 2 January 2021, which were approved by the Directors on 23 February 2021. A copy of the financial statements of the Group in respect of the year ended 4 January 2020 has been annexed to the Company's annual return for 2019 and filed with the Companies Registration Office and is available on www.glanbia.com.

 

 

 

 

 

Glossary

Key Performance Indicators and non-IFRS performance measures

 

NOT COVERED BY INDEPENDENT AUDITOR'S REPORT

Non-IFRS performance measures

The Group reports certain performance measures that are not defined under IFRS but which represent additional measures used by the Board of Directors and the Glanbia Operating Executive in assessing performance and for reporting both internally and to shareholders and other external users. The Group believes that the presentation of these non-IFRS performance measures provides useful supplemental information which, when viewed in conjunction with our IFRS financial information, provides readers with a more meaningful understanding of the underlying financial and operating performance of the Group.

 

None of these non-IFRS performance measures should be considered as an alternative to financial measures drawn up in accordance with IFRS.

 

The principal non-IFRS performance measures used by the Group are:

G 1. Constant currency

G 2. Revenue

G 3. EBITA

G 4. EBITA margin %

G 5. EBITDA

G 6. Constant Currency Basic and Adjusted Earnings Per Share (EPS)

G 7. Financing Key Performance Indicators

G 8. Volume and pricing increase/(decrease)

G 9. Like-for-like revenue increase/(decrease)

G 10. Effective tax rate

G 11. Average interest rate

G 12. Operating cash conversion

G 13. Operating cash flow and free cash flow

G 14. Return on capital employed (ROCE)

G 15. Total shareholder return (TSR)

G 16. Dividend payout ratio

G 17. Compound annual growth rate (CAGR)

G 18. Exceptional Items

 

These principal non-IFRS performance measures are defined below with a reconciliation of these measures to IFRS measures where applicable.

 

In the prior year the Group disclosed two non-IFRS measures (Total Group and Innovation rate) which are not included in the current year. Total Group is no longer used to describe trends and performance across the Group, with commentary now concentrated on IFRS measures that reference individual components of the Group and equity accounted investments. Innovation rate is no longer a performance condition of Glanbia's Annual Incentive Plan for Glanbia Performance Nutrition Senior Management hence not disclosed as an Alternative Performance measure of the Group.

 

G 1. Constant currency

While the Group reports its results in euro, it generates a significant proportion of its earnings in currencies other than euro, in particular US dollar. Constant currency reporting is used by the Group to eliminate the translational effect of foreign exchange on the Group's results. To arrive at the constant currency year-on-year change, the results for the prior year are retranslated using the average exchange rates for the current year and compared to the current year reported numbers.

 

The principal average exchange rates used to translate results for 2020 and 2019 are set out below:

 

1 euro =	2020	2019
US dollar	1.1423	1.1196
Pound sterling	0.8898	0.8772

 

All non-IFRS performance measures have been presented on a constant currency basis, where relevant, within this glossary.

 

G 2. Revenue

Revenue comprises sales of goods and services of the wholly-owned (Group) businesses to external customers net of value added tax, rebates and discounts. Revenue is one of the Group's Key Performance Indicators and is an IFRS performance measure.

 

G 2.1 Wholly-owned (Group) revenue:

	Reference to the Financial Statements/ Glossary	2020 €'m	2019 Reported €'m	2019 Retranslated €'m	Constant currency growth %	Like-for-like Growth %
Nutritional Solutions	Note 2	746.8	744.9	731.8	2.0%	0.8%
US Cheese	Note 2	1,938.3	1,767.0	1,731.9	11.9%	13.8%
Glanbia Nutritionals	Note 2	2,685.1	2,511.9	2,463.7	9.0%	10.0%
North America Performance Nutrition -
Branded		411.4	469.8	460.3	-10.6%	-9.0%
North America Performance Nutrition - Contract		23.4	68.5	67.2	-65.2%	-63.5%
North America Performance Nutrition	Note 2	434.8	538.3	527.5	-17.6%	-15.9%
North America Lifestyle	Note 2	357.3	392.0	384.2	-7.0%	-5.3%
International	Note 2	270.9	358.7	351.8	-23.0%	-21.3%
Direct-to-Consumer	Note 2	75.0	74.8	74.9	0.1%	1.9%
Glanbia Performance Nutrition	Note 2	1,138.0	1,363.8	1,338.4	-15.0%	-13.3%
Wholly-owned (Group) revenue		3,823.1	3,875.7	3,802.1	0.6%	1.8%

 

 

G 3. EBITA

EBITA is defined as earnings before interest, tax and amortisation. EBITA references throughout the annual report are on a pre-exceptional basis unless otherwise indicated. EBITA is one of the Group's Key Performance Indicators. Business Segment EBITA growth on a constant currency basis is one of the performance conditions in Glanbia's Annual Incentive Plan for Executive Directors with Business Unit responsibility.

 

G 3.1 Wholly-owned (Group) EBITA:

	Reference to the Financial Statements/Glossary	2020 €'m	2019 Reported €'m	2019 Retranslated €'m	Constant currency growth %
Nutritional Solutions		90.5	100.0	98.1	-7.7%
US Cheese		27.9	30.4	29.8	-6.4%
Glanbia Nutritionals	Note 2	118.4	130.4	127.9	-7.4%
Glanbia Performance Nutrition	Note 2	91.2	146.4	143.0	-36.2%
Wholly-owned (Group) EBITA		209.6	276.8	270.9	-22.6%

 

G 4. EBITA margin %

EBITA margin % is defined as EBITA as a percentage of revenue. Wholly-owned (Group) EBITA margin % is defined as wholly-owned (Group) EBITA as a percentage of wholly-owned (Group) revenue. Refer to G 2.1 and G 3.1 for reconciliations of wholly-owned (Group) revenue and wholly-owned (Group) EBITA respectively. EBITA references throughout the annual report are on a pre-exceptional basis unless otherwise indicated.

 

G 5. EBITDA

EBITDA is defined as earnings before interest, tax, depreciation (net of grant amortisation) and amortisation. EBITDA references throughout the annual report are on a pre-exceptional basis unless otherwise indicated.

 

G 5.1 Wholly-owned (Group) EBITDA:

	Reference to the Financial Statements/Glossary	2020 €'m	2019 €'m
Wholly-owned (Group) earnings before interest, tax and amortisation (pre-exceptional EBITA)	G 3.1	209.6	276.8
Depreciation*		63.9	48.1
Wholly-owned (Group) earnings before interest, tax, depreciation and amortisation (pre-exceptional EBITDA)	G 7, G 13	273.5	324.9

 

* Depreciation - includes depreciation of tangible assets of €45.9 million (2019: €48.1 million) and depreciation of right of use assets of €18.0 million (2019: nil).

 

G 6. Constant Currency Basic and Adjusted Earnings Per Share (EPS)

G 6.1 Constant Currency Basic Earnings Per Share (EPS)

Basic Earnings Per Share is calculated by dividing the net profit attributable to the equity holders of the Company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the Group and held as own shares (note 10).

	Reference to the Financial Statements/Glossary	2020 €'m	2019 Reported €'m	2019 Retranslated €'m
Profit attributable to equity holders of the Company	Group income statement	143.8	180.2	177.3
Weighted average number of ordinary shares in issue (thousands)	Note 7	295,173	295,215	295,215
Basic Earnings Per Share (cent)	Note 7	48.72	61.04	60.06
Constant Currency Change		-18.9%

 

G 6.2 Constant Currency Adjusted Earnings Per Share (EPS)

Adjusted EPS is defined as the net profit attributable to the equity holders of the Company, before exceptional items and intangible asset amortisation and impairment (excluding software amortisation), net of related tax, divided by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the Group and held as own shares (note 10). The Group believes that adjusted EPS is a better measure of underlying performance than Basic EPS as it excludes exceptional items (net of related tax) that are not related to ongoing operational performance and intangible asset amortisation, which allows better comparability of companies that grow by acquisition to those that grow organically.

 

Adjusted EPS is one of the Group's Key Performance Indicators. Adjusted EPS growth on a constant currency basis is one of the performance conditions in Glanbia's Annual Incentive Plan and in Glanbia's Long-Term Incentive Plan.

	Reference to the Financial Statements/Glossary	2020 €'m	2019 Reported €'m	2019 Retranslated €'m
Profit attributable to equity holders of the Company (pre-exceptional)	Group income statement	175.3	214.8	211.4
Amortisation and impairment of intangible assets (excluding software amortisation) net of related tax of €7.2 million (2019: €8.1 million)		42.5	45.3	44.4
Adjusted net income		217.8	260.1	255.8
Weighted average number of ordinary shares in issue (thousands)	Note 7	295,173	295,215	295,215
Adjusted Earnings Per Share (cent)	G 16	73.78	88.10	86.66
Constant Currency Change		-14.9%

 

G 7. Financing Key Performance Indicators

The following are the financing Key Performance Indicators defined as per the Group's financing agreements.

 

G 7.1 Net debt: adjusted EBITDA

Net debt: adjusted EBITDA is calculated as net debt at the end of the period divided by adjusted EBITDA. Net debt is calculated as total financial liabilities less cash and cash equivalents. Adjusted EBITDA is calculated in accordance with lenders' facility agreements definitions which adjust pre-exceptional EBITDA for items such as dividends received from equity accounted investees, acquisitions or disposals and to reverse the net impact on EBITDA as a result of adopting IFRS 16 'Leases'. Adjusted EBITDA is a rolling 12 month measure.

	Reference to the Financial Statements/Glossary	2020 €'m	2019 €'m
Net debt	Note 9	493.9	614.3
EBITDA	G 5	273.5	324.9
IFRS 16 adjustment		(22.0)	-
Adjustments in line with lenders' facility agreements		38.8	35.0
Adjusted EBITDA		290.3	359.9
Net debt: adjusted EBITDA		1.70	1.71

 

G 7.2 Adjusted EBIT: adjusted net finance cost

Adjusted EBIT: net finance cost is calculated as earnings before interest and tax adjusted for the IFRS 16 'Leases' impact on operating profit plus dividends received from equity accounted investees divided by net finance cost. Adjusted net finance cost comprises finance costs less finance income per the Group income statement plus capitalised borrowing costs and excludes interest expense on lease liabilities. Adjusted EBIT and net finance cost are rolling 12 month measures.

	Reference to the Financial Statements/Glossary	2020 €'m	2019 €'m
Operating profit (pre-exceptional)	Group income statement	148.7	215.9
Dividends received from equity accounted investees	Group statement of cash flows	36.6	35.3
IFRS 16 adjustment - interest	Group statement of cash flows	(2.8)	-
Adjusted EBIT		182.5	251.2
Adjusted net finance costs	Note 5	18.2	27.0
Adjusted EBIT: adjusted net finance cost		10.0	9.3

 

G 8. Volume and pricing increase/(decrease)

Volume increase/(decrease) represents the impact of sales volumes within the revenue movement year-on-year, excluding volume from acquisitions, on a constant currency basis.

 

Pricing increase/(decrease) represents the impact of sales pricing (including trade spend) within revenue movement year-on-year, excluding acquisitions, on a constant currency basis.

 

G 8.1 Reconciliation of volume and pricing increase/(decrease) to constant currency revenue growth:

	Reference to the Financial Statements/ Glossary	Volume  increase/ (decrease)	53rd Week Adjustment*	Price  increase/ (decrease)	Acquisitions/ (disposals)	Revenue  increase/ (decrease)
Nutritional Solutions	G 2.1	2.4%	-1.9%	-1.6%	3.1%	2.0%
US Cheese	G 2.1	5.0%	-1.9%	8.8%	0.0%	11.9%
Glanbia Nutritionals	G 2.1	4.2%	-1.9%	5.8%	0.9%	9.0%
Glanbia Performance Nutrition	G 2.1	-13.4%	-1.7%	0.1%	0.0%	-15.0%
2020 increase/(decrease) % - wholly-owned (Group) revenue	G 2.1	-2.0%	-1.8%	3.8%	0.6%	0.6%

 

* The 2020 results are for a 52 week period ended 2 January 2021 while the 2019 results are for the 53 week period ended 4 January 2020. The 53rd week adjustment is to allow for consistent comparison of this metric.

 

G 9. Like-for-like revenue increase/(decrease)

G 9.1 Glanbia Performance Nutrition (GPN) like-for-like revenue

GPN like-for-like total revenue represents the sales increase/(decrease) year-on-year, excluding acquisitions and the impact of a 53rd week (when applicable), on a constant currency basis.

 

GPN like-for-like branded revenue represents the sales increase/(decrease) year-on-year on branded sales, excluding acquisitions and the impact of a 53rd week (when applicable), on a constant currency basis. Like-for-like branded revenue increase/(decrease) is one of the GPN segment's Key Performance Indicators. Like-for-like branded revenue increase/(decrease) is one of the performance conditions in Glanbia's Annual Incentive Plan for GPN Senior Management.

 

G 9.2 Glanbia Nutritionals like-for-like revenue

This represents the sales increase/(decrease) year-on-year, excluding acquisitions and the impact of a 53rd week (when applicable), on a constant currency basis.

 

G 10. Effective tax rate

The effective tax rate is defined as the pre-exceptional income tax charge divided by the profit before tax less share of results of equity accounted investees.

 

	Reference to the Financial Statements/Glossary	2020 €'m	2019 €'m
Profit before tax (pre-exceptional)	Group income statement	189.8	238.2
Less share of results of equity accounted investees (pre-exceptional)	Group income statement	(61.6)	(48.6)
		128.2	189.6
Income tax (pre-exceptional)	Group income statement	14.5	23.4
Effective tax rate		11.3%	12.3%

 

G 11. Average interest rate

The average interest rate is defined as the annualised net finance costs (pre-capitalised borrowing costs and excluding interest expense on lease liabilities) divided by the average net debt during the reporting period.

 

G 12. Operating cash conversion

Operating cash conversion is defined as Operating Cash Flow (OCF) divided by pre-exceptional EBITDA. Cash conversion is a measure of the Group's ability to convert trading profits into cash and is an important metric in the Group's working capital management programme.

 

G 13. Operating cash flow and free cash flow

Operating cash flow is defined as pre-exceptional EBITDA of the wholly-owned businesses net of business sustaining capital expenditure and working capital movements, excluding exceptional cash flows.

 

Operating cash flow is one of the Group's Key Performance Indicators. Operating cash flow is one of the performance conditions in Glanbia's Annual Incentive Plan.

 

Free cash flow is calculated as the net cash flow in the year before the following items: strategic capital expenditure, equity dividends paid, loans/investments in equity accounted investees, exceptional costs paid, acquisition spend, proceeds received on disposals, purchases under share buy-back and currency translation movements.

 

	Reference to the Financial Statements/Glossary	2020 €'m	2019 €'m
Earnings before interest, tax, depreciation and amortisation (pre-exceptional EBITDA)	G 5	273.5	324.9
Movement in working capital (pre-exceptional)	G 13.3	77.8	(24.9)
Business sustaining capital expenditure	G 13.5	(16.5)	(20.1)
Operating cash flow	G 13.1	334.8	279.9
Net interest and tax paid	G 13.4	(43.0)	(74.1)
Dividends received from equity accounted investees	Group statement of cash flows	36.6	35.3
Payments of lease liabilities	Group statement of cash flows	(19.2)	-
Other outflows	G 13.6	(2.7)	(9.6)
Free cash flow		306.5	231.5
Strategic capital expenditure	G 13.5	(47.7)	(56.2)
Dividends paid to Company shareholders	Group statement of cash flows	(78.6)	(74.3)
Purchase of own shares	Note 10	(16.6)	-
Loans/investment in equity accounted investees	Group statement of cash flows	(9.6)	(47.4)
Exceptional costs paid	G 13.2	(29.5)	(12.0)
Payment for acquisition of subsidiaries, net of cash and cash equivalents acquired	Group statement of cash flows	(21.9)	(58.3)
Proceeds from the sale of property, plant and equipment	Group statement of cash flows	-	0.2
Net cash flow		102.6	(16.5)
Exchange translation		30.0	(10.5)
Debt acquired on acquisition	Note 14	(12.2)	(10.6)
Net debt movement		120.4	(37.6)
Opening net debt	Note 9	(614.3)	(576.7)
Closing net debt	Note 9	(493.9)	(614.3)

 

G 13.1 Reconciliation of operating cash flow to the Group statement of cash flows in the Financial Statements:

 

	Reference to the Financial Statements/Glossary	2020 €'m	2019 €'m
Cash generated from operating activities	Note 13	319.9	285.9
Add back exceptional cash flow in the year	G 13.2	29.5	12.0
Less business sustaining capital expenditure	G 13.5	(16.5)	(20.1)
Non-cash items not adjusted in computing operating cash flow: Cost of share-based payments	Note 13	(5.2)	(4.6)
Difference between pension charge and cash contributions	Note 13	7.2	7.6
Other items		(0.1)	(0.2)
Amounts payable to the MWC-Southwest Holdings LLC joint venture partners		-	(0.7)
Operating cash flow	G 13	334.8	279.9

 

G 13.2 Exceptional cash flow in the year:

	Reference to the Financial Statements/Glossary	2020 €'m	2019 €'m
Pre-tax exceptional charge in the year	Group income statement	(35.7)	(39.1)
Non-cash element of pre-tax exceptional charge in the year	Note 13	12.2	27.1
Current year exceptional items paid in the year	Note 4	(23.5)	(12.0)
Prior year exceptional items paid in the year	Note 4	(6.0)	-
Total exceptional cash outflow in the year	Note 4	(29.5)	(12.0)

 

G 13.3 Movement in working capital:

	Reference to the Financial Statements/Glossary	2020 €'m	2019 €'m
Movement in working capital (pre-exceptional)		77.8	(24.9)
Net write back of inventories (pre-exceptional)	Note 13	(23.0)	(5.3)
Non-cash movement in allowance for impairment of receivables	Note 13	(5.2)	(1.8)
Prior year exceptional items paid in the year	G 13.2, Note 4	(6.0)	-
Non-cash movement in provisions (pre-exceptional)	Note 13	(3.3)	0.9
Non-cash movement on cross currency swaps	Note 13	0.7	(0.8)
Amounts payable to the MWC-Southwest Holdings LLC joint venture partners		-	0.7
Movement in working capital		41.0	(31.2)

 

G 13.4 Net interest and tax paid:

 

	Reference to the Financial Statements/Glossary	2020 €'m	2019 €'m
Interest received	Group statement of cash flows	4.6	3.7
Interest paid (including leases)	Group statement of cash flows	(25.0)	(32.5)
Tax paid	Group statement of cash flows	(22.1)	(44.6)
Interest paid in relation to property, plant and equipment	Group statement of cash flows	(0.5)	(0.7)
Net interest and tax paid	G 13	(43.0)	(74.1)

 

G 13.5 Capital expenditure:

	Reference to the Financial Statements/Glossary	2020 €'m	2019 €'m
Business sustaining capital expenditure	G 13	16.5	20.1
Strategic capital expenditure	G 13	47.7	56.2
Total capital expenditure		64.2	76.3
Purchase of property, plant and equipment	Group statement of cash flows	38.0	42.7
Purchase of intangible assets	Group statement of cash flows	26.2	33.6
Total capital expenditure per the Group statement of cash flows		64.2	76.3

 

Business sustaining capital expenditure

The Group defines business sustaining capital expenditure as the expenditure required to maintain/replace existing assets with a high proportion of expired useful life. This expenditure does not attract new customers or create the capacity for a bigger business. It enables the Group to keep operating at current throughput rates but also keep pace with regulatory and environmental changes as well as complying with new requirements from existing customers.

 

Strategic capital expenditure

The Group defines strategic capital expenditure as the expenditure required to facilitate growth and generate additional returns for the Group. This is generally expansionary expenditure beyond what is necessary to maintain the Group's current competitive position.

 

G 13.6 Other (outflows)/inflows:

	Reference to the Financial Statements/Glossary	2020 €'m	2019 €'m
Cost of share-based payments	Note 13	5.2	4.6
Difference between pension charge and cash contributions	Note 13	(7.2)	(7.6)
Loss on disposal of property, plant and equipment (pre-exceptional)	Note 13	0.8	0.2
Proceeds from disposals/redemption of FVOCI financial assets	Group statement of cash flows	0.3	0.5
Payments for FVOCI financial assets	Group statement of cash flows	(0.1)	(0.4)
Purchase of own shares		(1.0)	(7.6)
Non-cash movement on disposal of leases Amounts payable to the MWC-Southwest Holdings LLC joint venture partners	Note 13	(0.7) -	- 0.7
Total other outflows	G 13	(2.7)	(9.6)

 

G 14. Return on capital employed (ROCE)

ROCE is defined as the Group's earnings before interest, and amortisation (net of related tax) plus the Group's share of the results of equity accounted investees after interest and tax divided by capital employed. Capital employed comprises the sum of the Group's total assets plus cumulative intangible asset amortisation and impairment less current liabilities and deferred tax liabilities excluding all borrowings, lease liabilities and acquisition related liabilities; retirement benefit assets and cash. It is calculated by taking the average of the relevant opening and closing balance sheet amounts.

 

In years where the Group makes significant acquisitions or disposals, the ROCE calculation is adjusted appropriately, to ensure the acquisition or disposal are equally time apportioned in the numerator and the denominator.

 

ROCE is one of the Group's Key Performance Indicators. ROCE is one of the performance conditions in Glanbia's Long-Term Incentive Plan.

 

	Reference to the Financial Statements/Glossary	2020 €'m	2019 €'m
Operating profit (pre-exceptional)	Group income statement	148.7	215.9
Tax on operating profit Amortisation and impairment of intangible assets net of related tax of €9.5m (2019: €9.6m)		(16.8)   51.4	(26.6)   51.3
Share of results of equity accounted investees (pre-exceptional)	Group income statement	61.6	48.6
Return		244.9	289.2
Total assets	Group balance sheet	3,065.4	3,400.9
Adjustment for effect of adoption of IFRS 16	Note 12	106.4	-
Current liabilities	Group balance sheet	(719.1)	(955.3)
Deferred tax liabilities	Group balance sheet	(146.5)	(168.6)
Less cash and cash equivalents	Group balance sheet	(164.3)	(269.0)
Plus current financial liabilities	Group balance sheet	199.8	369.1
Plus acquisition related liabilities		17.4	-
Plus short-term lease liabilities	Group balance sheet	15.8	-
Less retirement benefit assets	Group balance sheet	(2.6)	(2.1)
Plus accumulated amortisation		363.2	360.1
Capital employed before acquisition adjustment		2,735.5	2,735.1
Adjustment for acquisitions	G 14.1	(12.0)	49.4
Capital employed		2,723.5	2,784.5
Average capital employed		2,729.3	2,664.0
Return on capital employed		9.0%	10.9%

 

G 14.1 Adjustment for acquisitions

This adjustment is required to ensure the capital employed of the Foodarom (2020) and Watson (2019) acquisitions are appropriately time apportioned in the denominator.

 

G 15. Total shareholder return (TSR)

TSR represents the change in the capital value of a listed/quoted company over a period, plus dividends reinvested, expressed as a plus or minus percentage of the opening value.

 

TSR is one of the Group's Key Performance Indicators. TSR is one of the performance conditions in Glanbia's Long-Term Incentive Plan.

 

G 16. Dividend payout ratio

Dividend payout ratio is defined as the annual dividend per ordinary share divided by the Adjusted Earnings Per Share. The dividend payout ratio provides an indication of the value returned to shareholders relative to the Group's total earnings.

 

	Reference to the Financial Statements/Glossary	2020 € cent	2019 € cent
Adjusted Earnings Per Share	G 6.2	73.78	88.10
Dividend recommended/paid per ordinary share	Note 8	26.62	26.62
Dividend payout %		36.1%	30.2%

 

G 17. Compound annual growth rate (CAGR)

The compound annual growth rate is the annual growth rate over a period of years. It is calculated on the basis that each year's growth is compounded.

 

G 18. Exceptional items

The Group considers that items of income or expense which are material by virtue of their scale and nature should be disclosed separately if the Group financial statements are to fairly present the financial performance and financial position of the Group. Determining which transactions are to be considered exceptional in nature is often a subjective matter. However, circumstances that the Group believes would give rise to exceptional items for separate disclosure are outlined in the accounting policy on exceptional items in note 1. Exceptional items are included on the income statement line item to which they relate. In addition, for clarity, separate disclosure is made of all items in one column on the face of the Group income statement. Refer to note 4 for an analysis of exceptional items recognised in 2020.