2013 mar 19 — glanbia plc

Glanbia plc Small/Mid-Cap: Food Manufacturing

1

A great end to a transformational year

● Glanbia’s 22% EPS growth in 2012 (the third consecutive year of over 20% growth) was a great end to a transformational year. Following the Dairy Ingredients JV and Co-op stake reduction, Glanbia can now focus on its fast-growing Global Nutritionals division, driving group margin and ROIC expansion. Despite a re-rating, 13.5x 2014 P/E is good value for superior sustainable growth, with sports nutrition assets envied by FMCG and pharmaceutical companies alike.

● Better ROIC and margin profile: The higher-margin, high-growth Global Nutritionals division now accounts for 78% of group EBITA compared to 55% in 2011. This has reduced earnings exposure to volatile global dairy markets, increased group margins by 175bp from 6.7% in 2011 to 8.5% in 2013E, and raised group ROIC by 320bp from a low of 10.6% in 2009 to 13.8% in 2013E. By 2015, we expect further improvements in group margins (+115bp to 9.6%) and ROIC (+220bp to 16.0%).

● Whey protein market in rude health: Key to the 20% organic growth in the Global Nutritionals division is robust demand for whey protein – both via Glanbia’s sports nutrition brands and as a natural, high-protein ingredient in the food and beverage industry. Volumes recovered quickly following price increases in 2011/12 (exiting FY 2012 in high-teen growth), driven by new users, product innovation and international sales growth.

● Forecasts adjustments: We reduce our EPS forecasts by 2% to reflect earnings dilution from the Ingredients JV and lower selling prices for whey in Ingredient Technologies. This leaves 10% EPS growth for 2013 (top end of 8-10% guidance) and 14% for 2014 and 2015. We expect 15% EBITA growth in Global Nutritionals in 2013 (including margins up 50bp due to lower whey input prices), with US Cheese expanding 3% and Dairy Ireland 1%. We forecast Global Nutritionals margins to reach 10.5% – breaking the 10% target level.

● Price target raised to EUR9.70: This reflects an average of peer multiple comparison (EUR9.60), SOTP (EUR9.70) and DCF (EUR9.90) fair values.

Buy Rating system

Current price

EUR 8.66

Absolute

Price target

EUR 9.70 18/03/2013 Irish Close Market cap EUR 2,546 m Reuters /GL9.I Bloomberg GLB ID

Changes made in this note Rating Buy (no change) Price target EUR 9.70 (9.50) Chg 2013e 2014e 2015e

old Δ% old Δ% old Δ%

Sales 2368 -2.3 2533 -2.2 - -

EBIT 190 -6.7 217 -5.3 - -

EPS 57.40 -2.3 65.36 -2.2 - -

Source: Berenberg Bank estimates

Share data

Shares outstanding (m) 297 Enterprise value (EUR m) 2,700 Daily trading volume 289,195

Performance data

High 52 weeks (EUR) 9 Low 52 weeks (EUR) 5 Relative performance to SXXP FTSE 250 1 month 3.1 % 1.4 % 3 months 3.8 % -8.0 % 12 months 49.3 % 33.3 %

Key data

Price/book value 3.8 Net gearing 61.2 % CAGR sales 2011-2015 6.2 % CAGR EPS 2011-2015 10.9 %

Business activities: International nutritional ingredients (including whey protein), cheese and dairy packaged foods group

19 March 2013

James Targett, CFA Analyst +44 20 3207 7873 [email protected]

Fintan Ryan

Analyst +44 20 3465 2748 [email protected]

Rupert Trotter

Specialist Sales +44 20 3207 7815 [email protected]

Y/E 31.12., EUR m 2011 2012 2013E 2014E 2015E

Sales 2,671 2,212 2,314 2,477 2,648

EBITDA 214 201 221 250 280

EBITA adjusted 180 176 196 225 255

Net income adjusted 136 150 165 188 215

Y/E net debt (net cash) 480 377 323 254 145

EPS reported (basic, cents) 38.2 48.9 49.7 57.5 66.7

EPS reported (diluted, cents) 37.9 48.5 49.2 57.0 66.1

EPS adjusted (cents) 45.9 51.0 56.1 64.0 73.1

DPS (cents) 8.3 9.1 10.2 11.4 11.4

EBITDA margin 8.0% 9.1% 9.6% 10.1% 10.6%

EBITA margin 6.7% 8.0% 8.5% 9.1% 9.6%

Dividend yield 1.9% 1.5% 1.2% 1.3% 1.3%

FCF Yield 4.5% 0.6% 2.0% 4.0% 5.6%

ROIC (post tax) 13.0% 12.7% 13.8% 14.8% 16.0%

EV/EBITDA 7.3 10.2 11.0 9.6 8.2

EV/EBITA 8.6 11.5 12.3 10.6 9.0

EV/EBIT 9.5 12.9 13.5 11.4 9.6

P/E 9.6 12.2 15.4 13.5 11.8

Source: Company data, Berenberg Bank


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Investment case revisited

A transformational year

Aside from being another year of stellar earnings performance – the third consecutive year of over 20% earnings growth – 2012 was also a year of transformation for Glanbia. The key development was the disposal of 60% of Glanbia’s interest in Dairy Ingredients Ireland to the Co-op, the subsequent establishment of the Glanbia Ingredients Ireland JV and a 13% reduction in the Co-op’s stake in Glanbia to 41% (via a 6% share placing and 7% share distribution to Co-op members).

Figure 1: Group structure changes in 2012

Source: Company data

The impact on group profitability is that the higher-margin, high-growth Global Nutritionals division now accounts for 78% of group EBITA (c.65% including JVs), compared to 55% in 2011 (c.50% including JVs). This has reduced earnings exposure to volatility in global dairy markets, increased group margins by 175bp from 6.7% in 2011 to 8.5% for 2013, and raised group ROIC by 320bp from a low of 10.6% in 2009 to 13.8% (our forecast) in 2013. Looking ahead to 2015, we expect further improvements in group margins (+115bp to 9.6%) and ROIC (+220bp to 16.0%).

Figure 2: Group EBITA split (2011) Figure 3: Group EBITA split (2013)

Source: Company data Source: Berenberg Bank estimates

Glanbia plc

Glanbia corporate structure

Dairy Ireland

Dairy Ingredients

Ireland

Consumer Products

Agribusiness

US Cheese & Global

Nutritionals

Joint Ventures & Associates

US Cheese

Ingredient Technologies

Performance Nutrition

Customised Premix

Solutions

GlanbiaIngredients

Ireland

Southwest Cheese (USA)

Nutricima(Nigeria)

Glanbia Cheese (UK)

100% owned subsidiary 40% owned

associate

Global Nutritionals

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Ingredient

Tech15%

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Premix Solutions

13%

Perform.

Nutrition28%US Cheese

12%

Dairy Ireland32%

Global Nutritionals

78%

Ingredient Tech

19%

Custom Premix

Solutions18%

Perform. Nutrition

41%

US Cheese12%

Dairy Ireland

11%


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Figure 4: Group ROIC profile (2007-15E) Figure 5: Group EBITA margin profile (2007-15E)

Source: Berenberg Bank estimates, Company data Source: Berenberg Bank estimates, Company data

Structural growth in whey protein is the core driver

The growth of the sports nutrition market – in which whey protein is an essential ingredient – is central to the positive outlook for Glanbia. Management estimates the US sports nutrition market grew at 11% in 2012 – with growth coming from existing core “strength” users, but also increasingly “lifestyle” users who engage with the category for health reasons (satiety, protein intake) as well as for fitness training. Innovation is a key focus for Glanbia, with 20% of revenues from products developed in the last 36 months. The pre-workout category is a particular focus. International sales in Performance Nutrition (c.30% division sales) were strong in 2012 (organic growth mid-20%s), driven by “Tier 1” international markets.

The category remains extremely resilient. This is illustrated in Figure 6 by GNC’s LFL directly operated retail store sales (the largest distributor of Glanbia’s products in the US), which have averaged 6.3% growth since 2005 without a single negative quarter. Glanbia’s Performance Nutrition FY growth of c.8% was reassuring as, following price increases of more than 30% at the end of 2011 and beginning of 2012, volume growth slowed to just 3-4% in H1 2012 – implying a high-teen exit rate for the full year. Glanbia is developing a range with Costco which will be separate from, but endorsed by, the core Optimum Nutrition brand (and priced at a premium) to tap into growth from the “club” user channel. This does not however signal a general move into more mass channels, which would dilute the brand proposition for core strength customers.

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Figure 6: GNC LFL growth rate


However, it is not just sports nutrition driving whey protein consumption. There is a general trend towards increased protein content in food to improve its nutritional profile, but also to provide greater satiety in the fight against obesity (see our report, Top 10 trends shaping packaged food innovation, dated 20 February). There are challenges to this as protein is expensive (e.g. meat, fish) and can be difficult to add to food and beverages because of its taste and textural properties. Whey protein offers a concentrated protein ingredient which also satisfies demand for natural or clean labelling. In addition, Glanbia is a major supplier of whey protein as a B2B ingredient via its Ingredients Technology division.

Figure 7: Protein market size (as ingredient, k tonnes)

Figure 8: Product innovations with whey protein as an ingredient

Source: Euromonitor Source: Mintel

Investing in growth

Glanbia invested EUR115m in growth in 2012 – including the EUR45m acquisition of Aseptic Solutions, a nutritional beverage-based ingredient manufacturer in the US. Other investments included a EUR21m value-added whey processing expansion in Ireland. Ongoing projects include a USD11m cheese innovation centre (due for completion in H1 2013), a USD29m value-added cereal ingredients plant (H2 2013), USD45m capacity expansion for Performance Nutrition in Chicago (2014), and a USD20m Customised Premix Solutions plant in Germany to focus on the EMEA region. Capex for 2013 is expected to be

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http://www.berenberg.de/cgi-bin/content/content.cgi?rm=show_doc&session_id=5fea21ff02492fab805e3e8711d1d8f3&sb_userid=0&sb_eventid=0


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EUR130m, with a potential additional EUR200m for acquisitions (in Global Nutritionals, most likely Performance Nutrition).

Valuation

While the stock has undoubtedly re-rated over the last couple of years – reflecting the greater weighting of the more highly rated Global Nutritionals division – it still only trades on 13.5x 2014 P/E, a discount of more than 20% to the sector. The higher earnings outlook means that, on a PEG basis, the stock is trading towards the bottom end of its historic range on 1.1x. It is worth noting too (Figure 12) that earnings guidance has been consistently upgraded throughout the fiscal year for each of the last four years – with single-digit guidance ending up a robust double-digit reality.

Following the Dairy Ingredients JV and Co-op stake reduction, Glanbia can focus on its fast-growing Global Nutritionals division, driving group margin and ROIC expansion. The Ingredients Ireland JV is well placed to capitalise on Irish milk production increases after 2015. Despite re-rating, 13.5x 2014 P/E is good value for superior sustainable growth. In the long term, we see Glanbia as a take-over candidate, with growing interest in sports nutrition from FMCG and pharmaceutical companies.

Figure 9: P/E FY2 Figure 10: EPS CAGR FY1-3

Source: Datastream Source: Datastream

Figure 11: PEG FY1-3

Source: Datastream

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Figure 12: Historical earnings guidance

2009 2010 2011 2012 2013

EPS guidance at start of year (constant currency) +2-5% n.a. +11-13% +5-7% +8-10%

EPS guidance at H1 (constant currency) 30-32c +c.20% +18-20% +8-10% -

Achieved adj. EPS growth -14.4% +24.1% +21.7% +22.1% -

Achieved adj. EPS growth (constant currency) - - +26.7% +14.2% - Source: Company data

On a returns basis Glanbia looks particularly attractive, trading “below the line” on our EV/IC vs. ROIC/WACC screens. This positioning makes Glanbia look particularly undervalued considering our forecast 320bp improvement in ROIC to 16.0% by 2015.

Figure 13: EV/IC vs. ROIC/WACC (FY2) Figure 14: EV/IC vs. ROIC (ex. goodwill)/WACC (FY2)

Source: Berenberg Bank estimates, Company data Source: Berenberg Bank estimates, Company data

New price target of EUR9.70

Having updated our model to reflect FY 2012 results reported in the new group structure, our new 2013-15 forecasts and higher sector valuations, we nudge up our target price to EUR9.70. This reflects an average of our peer multiple comparison fair value (EUR9.60, based on 15x 2014 P/E), SOTP analysis (EUR9.70 – using a 13x EV/EBITDA multiple for Global Nutritionals – with comps including Kerry, Chr. Hansen, IFF, Symrise, Novozymes, Naturex and Givuadan) and DCF analysis (EUR9.90, using 6.5% medium-term EBIT growth, 2% long-term growth and an 8% WACC).

Forecast adjustments

We reduce our EPS forecasts by 2% to reflect earnings dilution from the new Irish JV and slightly lower profits in Ingredient Technologies on the back of lower selling prices for whey. This gives 10% EPS growth for 2012 (at the top end of 8-10% guidance, on a “continuing” EPS base of 51.0 cents) and growth of 14% for 2014 and 2015.

Our full divisional forecasts are given in Figure 15. We increase our forecasts for Performance Nutrition, due to the strong volume outlook and higher margins from lower whey prices, and Customised Premix Solutions. In total, we expect 12% organic growth and 15% EBITA growth for Global Nutritionals in 2013 (including margins up 50bp), and EBITA growth of 3% for US Cheese and 1% for Dairy Ireland. We forecast Global Nutritionals margins to reach 10.5% – breaking management’s 10% target level.

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Figure 15: Divisional forecasts

2012 2013 2014 2015

Divisional forecasts FY % yoy FYE % yoy FYE % yoy FYE % yoy

Revenues (EURm)

US Cheese & Global Nutritionals 1,581 20.0% 1,677 6.1% 1,827 8.9% 1,985 8.7%

US Cheese 572 5.0% 574 0.5% 586 2.0% 598 2.0%

Global Nutritionals 998 29.1% 1,102 10.5% 1,241 12.5% 1,388 11.8%

Dairy Ireland 631 3.2% 636 0.8% 649 2.0% 662 2.0%

Group 2,212 14.7% 2,314 4.6% 2,477 7.0% 2,648 6.9%

Organic growth (%)

US Cheese & Global Nutritionals 10.0%

8.3%

8.9%

8.7% US Cheese -4.5%

2.0%

2.0%

2.0%

Global Nutritionals 20.2%

12.0%

12.5%

11.8% Dairy Ireland 2.5%

1.4%

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Group 7.6% 6.3% 7.0% 6.9%

Volume growth (%)

US Cheese & Global Nutritionals 6.4% 8.0% 7.4% 7.0%

US Cheese 1.2% 2.0% 2.0% 2.0%

Global Nutritionals 9.7% 11.5% 10.2% 9.4%

Dairy Ireland 0.7% 0.5% 1.0% 1.0%

Group 4.7% 5.8% 5.6% 5.5%

EBITA (adj.) (EURm)

US Cheese & Global Nutritionals 156 26.8% 176 13.0% 200 13.9% 229 14.3%

US Cheese 22 0.3% 23 2.7% 25 7.1% 26 6.9%

Global Nutritionals 133 32.8% 153 14.6% 176 15.0% 202 15.3%

Dairy Ireland 20 -19.8% 21 1.0% 24 18.2% 27 9.4%

Group 176 18.8% 196 11.6% 225 14.4% 255 13.7%

EBITA margin (%)

US Cheese & Global Nutritionals 9.8% 52 10.5% 64 11.0% 48 11.5% 56

US Cheese 3.9% -19 4.0% 9 4.2% 20 4.4% 20

Global Nutritionals 13.4% 38 13.9% 49 14.1% 30 14.6% 44

Dairy Ireland 3.2% -93 3.2% 1 3.8% 51 4.0% 27

Group 8.0% 27 8.5% 53 9.1% 58 9.6% 58



8

FY 2012 results review

Figure 16: FY 2012 results (pro forma group including GII) summary

EURm FY 2012A Berenberg Consensus

Sales

Group 2,835 2,900 2,688

US Cheese & Global Nutritionals 1,581 1,567 Dairy Ireland 631 622 Constant currency sales growth (%)

Group 8.3% 5.1% US Cheese & Global Nutritionals 10.9% 11.4% Dairy Ireland 2.4% -1.3% EBITA

Group 212 215 206

US Cheese & Global Nutritionals 156 157 Dairy Ireland 20 28 Glanbia Ingredients Ireland JV 36 30 EBITA margin (%)

Group 7.5% 7.4% 7.6%

US Cheese & Global Nutritionals 9.8% 10.0% Dairy Ireland 3.2% 4.5%

Net Income 166 160 135

EPS (adj.) 56.6 53.9 52.8

DPS 9.1 9.4 9.1

Source: Berenberg Bank estimates, Company data, Bloomberg consensus

Following a transformational 2012 with the partial divestiture of its Irish dairy processing business, Glanbia reported strong results (albeit much restated) for the year and highlighted a positive outlook for the continuing businesses for 2013.

Glanbia reported (wholly owned) sales of EUR2,212m (+14.4% yoy) for FY 2012 (constant currency sales of EUR2,092m, +8.3%) and EBITA of EUR176m with an 8.0% margin, up 70bp yoy (EUR163m in constant currency; a 7.8% margin, up 50bp yoy).

Following the completion of the Glanbia Ingredients Ireland (GII) JV, the company has restated several of its numbers to reflect the new composition of the group. Accounting for the new pro forma JVs and associates revenues, pro forma group sales were up 10.4% on a reported basis at EUR3,038m (+4.8% to EUR2,885m in constant currency). For the pro forma group, EBITA was EUR214m (7.0% margin, up 40bp yoy) on a reported basis and EUR199m (6.9% margin, up 30bp yoy) in constant currency.

On a pro forma basis (assuming the GII transaction had taken effect prior to the start of the financial year), adjusted EPS from continuing operations was EUR0.51 (+26.5% yoy); including the effect of discontinued operations, the reported adjusted EPS was EUR0.566 (+22.1% yoy). Management is cautiously optimistic for FY 2013 and has guided for constant-currency adjusted EPS growth of 8-10% from a base of EUR0.51.

Closing net debt was EUR377m at year-end 2012, down EUR104m, benefitting from cash inflows from the GII JV; net debt/adjusted EBITDA now stands at 1.7x, down from 2.1x at the end of 2011. The company’s pension deficit increased by EUR50m due to a reduction in the discount rate on Irish retirement obligations


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from 5.6% to 3.8% despite the removal of GII obligations and annual contributions.

Going into 2013, the company has said that it has the capacity to spend up to EUR200m on M&A, particularly focused on the Global Nutritionals business, following a relatively subdued 2012. Investment in existing facilities and in the infrastructure and people required for further growth in existing markets and internationally will continue.

US Cheese & Global Nutritionals

Reported US Cheese & Global Nutritionals sales increased 20% yoy in 2012 to EUR1,581m (+11% to EUR1,461m on a constant-currency basis), driven by 6% volume growth and a 4% pricing/mix effect. Reported EBITA increased 32.3% to EUR155.5m (9.8% margin, up 90bp); on a constant-currency basis, EBITA was up 21% to EUR142.2m with an 80bp margin increase to 9.7%. This division now accounts for 51% of group revenues (including pro forma JVs and associates) and 72% of group pro forma EBITA.

US Cheese US Cheese recorded a slightly weaker performance yoy due to lower prices, despite low single digit sales volume growth. EBITA margins were flat but weaker sales led to a fall in EBITA. US cheese exports were up 17% in 2012; 2013 is expected to be another record year in this respect. An innovation centre in Idaho is due to be completed in H1 2013 and will allow Glanbia to innovate and co-develop products with key customers. Management expects performance in 2013 to be in line with 2012 with positive growth in the US cheese market driven by convenient retail and foodservice channels. A new pricing structure put in place during 2012 should protect business operating margins.

Ingredient Technologies Ingredient Technologies performed strongly in 2012 on the back of higher whey prices due to supply constraints and increased demand from food and beverage manufacturers; as a result, revenues and margins were higher. Two significant investments were made in the segment during 2012: Aseptic Solutions, a California-based formulator of nutritional beverages, was acquired in July for EUR45m; and construction began on a new cereal ingredient plan in South Dakota which is expected to be completed in H2 2013 – to replace the Canadian flax facility destroyed by fire in March 2012. As additional whey production capacity comes onstream, prices are expected to soften in 2013. However, overall segment performance is expected to remain strong as new technologies and products are developed.

Performance Nutrition Performance Nutrition had another strong year with total category growth of 11%. However, due to higher whey input costs and continued investment in the segment, EBITA margins declined “modestly” during the year. The company will continue to focus on the core specialist sports nutrition segment of the market because of the quality and the strength of its brands but it is also launching a range of “Club” products for more casual users. Glanbia is focusing on expansion in “Tier 1” international markets such as France, Germany, Spain, India, South Korea, Australia (the world’s largest sports nutrition market per capita) and Brazil by installing country management teams to focus on growth in the geographies. During 2013, Glanbia will continue to invest in capacity expansion and will complete the implementation of the SAP platform and the integration of the Optimum Nutrition and BSN businesses and back-office functions. As raw material cost pressures subside and volumes grow through innovation, brand


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development and international expansion, the outlook for the business in 2013 looks favourable.

Customised Premix Solutions Customised Premix Solutions (CPS) saw good volume growth for its micronutrient premix products in 2012. However, margins were down due to business mix effects (growth in lower margin products) and investment in a new EUR20m plant in Germany to serve the European, Middle East and African markets. Management is positive on the outlook for CPS in 2013 because of favourable underlying market trends and demand growth for functional, healthier food and beverage products.

Dairy Ireland

Sales volumes in the remaining Dairy Ireland business (Consumer Products and Agribusiness) were up 3% during the year with pricing growth of 2%. Overall segment revenues increased 2.4% to EUR631m due to the Yoplait franchise disposal in Ireland for EUR18m. EBITA margins declined 70bp and EBITA fell 14.3% to EUR20.4m on the back of higher input costs and a product mix switch to lower margin feeds from fertilisers in Agribusiness and continued consumer focus on discounts and private-label products. 2013 performance is expected to be in line with 2012’s, despite the challenging consumer environment.

JVs and Associates

Pro forma revenues and EBITA from JVs and associates (including GII) were EUR826m (+0.8%) and EUR37.7m (-6.9%; 4.6% margin) respectively (down 3.3% and 10.6% yoy at EUR792.5m and EUR36.2m in constant currency).

The standalone GII business had a stronger H2 due to robust world milk prices following a weaker H1; the business is continuing to invest for future Irish dairy production growth and commissioned a new whey processing plant in Ireland to serve European markets. The outlook for this business is “broadly positive”, with a similar performance to 2012 expected in 2013.

Southwest Cheese benefited from higher whey prices in 2012 which more than offset weaker US cheese prices. EBITA was up from a positive mix effect that is expected to continue into 2013. The business is looking at investing in additional lactose production capacity to serve increased demand for infant formula; this will be decided on in 2013.

The Nutricima business (number-three dairy product producer in Nigeria) was affected by unrest in the north of the country. This hit volumes and revenues but margins were maintained through a revised distribution strategy and networks. Nonetheless, the environment in 2013 is still expected to remain challenging.

Glanbia Cheese (Europe’s number-one mozzarella manufacturer) had a tough year with sales and EBITA down from a very strong 2011 and higher milk prices. However, it maintained its strong market position in the UK and volume growth is expected to drive an improved performance in 2013.


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Glanbia Buy

GLB ID Price Target: EUR9.70 Corporate profile: International nutritional ingredients (including whey protein), cheese and dairy packaged foods group

Our view Street sentiment

Following the Dairy Ingredients JV and Co-op stake reduction, Glanbia can fully focus on its fast-growing Global Nutritionals and sports nutrition sectors, driving group margin and ROIC expansion

The Glanbia Ingredients Ireland (GII) JV is now positioned to fully capitalise on the increase in Irish milk production after 2015

Despite stock re-rating, 13.5x 2014 P/E is still good value for superior and sustainable organic growth

Ratings: 3 Buys, 2 Holds, 0 Sells; ANR 4.2

Earnings revisions: (3m/4w EPS ch.): -0.8%/0.0%

Consensus vs. guidance: Management has guided to underlying EPS growth of 8-10% (in constant currency) for FY 2013; consensus growth is in this range

Trading technicals: Has just found support at the uptrend and looks ready to continue. Stock could pick up the up-tick despite volume peak, so buying interest in the stock is still high

Levels to watch: EUR8.05 strong support, EUR8.50 next bullish trigger, EUR9.00 upper end of the uptrend channel

Issues for the stock in 2013 What the Street is missing

Dairy prices will remain volatile, affecting Irish export revenues and related farm-gate prices

Lower whey prices will be key to margin recovery in Performance Nutrition

We expect more acquisitions in 2013 (closer to EUR200m) following just EUR50m in 2012

The Optimum Nutrition brand continues to gain momentum outside the US in “Tier 1” international markets

Further stake reduction and liquidity events: the Co-op now has authority to sell down a further 3% to 38% and just a single 66% vote is now required for a greater reduction

A take-out candidate: we see growing interest in sports nutrition from FMCG and pharmaceutical companies

Sports nutrition is not a fad but a resilient (and relatively price inelastic) category in structural growth. Whey protein is an ingredient in food and beverage also (natural, high-protein)

Share price vs. consensus PT/rating Current metrics vs. last five years

Source: Bloomberg Source: Berenberg Bank, Datastream

Share price vs. consensus estimates Upcoming events

Date Event

22-May-13 AGM

May-13 – TBC Capital Markets Day

29-Aug-13 H1 13 results release

Source: Bloomberg Source: Company data

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10

Jan-10 Jan-11 Jan-12 Jan-13

Price Price target ANR

Pri

ce(E

UR

)

AN

R

0.5

1.1

2.6

PEG

4.5 4.4

14.2

10.9

16.9

10.9

P/E FY2 EV/EBITDAFY2

10.6%

6.9%

13.8% 14.2%13.8%

15.9%

ROIC EPS CAGR

0.30

0.35

0.40

0.45

0.50

0.55

0.60

0.65

-

2

4

6

8

10

Jan-10 Jan-11 Jan-12 Jan-13

Price EPS1 EPS2

Pri

ce(E

UR

) EP

S (E

UR

)


12

Summary financials and valuation

YE 31-Dec (EURm) 2011 2012 2013E 2014E 2015E

Sales 2,671 2,212 2,314 2,477 2,648

EBITDA 214 201 221 250 280

EBIT 161 156 177 206 237

Net profit before exceptionals 136 150 165 188 215

EPS before exceptionals (c) 46 51 56 64 73

Dividend per share (c) 8 9 10 11 11

Net debt 480 377 323 254 145

Valuation (x)

EV / Net sales 1.1x 1.2x 1.2x 1.1x 1.0x

EV / EBITDA 13.0x 12.5x 11.6x 9.9x 8.9x

EV / EBIT 15.3x 14.2x 12.9x 10.9x 9.7x

EV / Invested capital 2.5x 2.4x 2.3x 2.1x 2.0x

P / E (adjusted) 18.8x 17.0x 15.4x 13.5x 11.8x

P / Book value 4.9x 4.7x 3.8x 3.2x 2.6x

FCF yield (%) 2.3% 0.4% 2.0% 4.0% 5.6%

Dividend yield (%) 1.0% 1.0% 1.2% 1.3% 1.3%

Growth rates (%)

Net sales 23.3% -17.2% 4.6% 7.0% 6.9%

EBITDA 16.0% -6.0% 10.2% 12.7% 12.4%

EBIT 3.8% 3.5% 12.6% 15.9% 15.0%

EBITA before exceptionals 18.4% -2.0% 11.6% 14.4% 13.7%

Net profit before exceptionals 21.9% 10.3% 10.0% 14.0% 14.3%

EPS before exceptionals 21.5% 11.0% 10.0% 14.0% 14.3%

Dividend per share 9.7% 9.9% 12.2% 11.7% 0.0%

Margins (%)

EBITDA 8.0% 9.1% 9.6% 10.1% 10.6%

EBITA before exceptionals 6.7% 8.0% 8.5% 9.1% 9.6%

EBIT 5.7% 7.1% 7.7% 8.3% 8.9%

Profit before tax 5.2% 6.8% 7.8% 8.5% 9.2%

Net profit 4.2% 6.5% 6.3% 6.8% 7.4%

Net profit before except. / goodwill 5.1% 6.8% 7.1% 7.6% 8.1%

Financial ratios (%)

EBITDA interest cover (x) 7.6x 9.8x 10.4x 12.8x 16.0x

EBIT interest cover (x) 6.4x 8.6x 9.3x 11.5x 14.6x

Dividend cover (x) 5.6x 5.6x 5.5x 5.6x 6.4x

Capex / net sales 1.8% 3.0% 5.6% 4.0% 3.0%

Free cash flow / EBITDA 27.5% 5.6% 23.2% 40.8% 51.1%

Free cash flow / net profit 43.3% 7.5% 31.1% 54.1% 66.6%

Working capital / net sales 15.1% 14.7% 14.5% 14.2% 14.2%

Net debt / EV (%) 16.5% 13.1% 12.0% 9.7% 5.8%

Net debt / EBITDA (x) 2.2x 1.9x 1.5x 1.0x 0.5x

ROIC (pre tax) 16.4% 15.2% 16.8% 18.2% 19.7%

ROIC (post tax) 13.0% 12.7% 13.8% 14.8% 16.0%

ROIC (pre tax, ex. goodwill) 22.0% 20.6% 22.7% 24.2% 25.8%

ROIC (post tax, ex. goodwill) 17.4% 17.2% 18.6% 19.6% 20.9%

ROE 28.7% 28.1% 27.3% 25.8% 24.4%

Source: Berenberg Bank, Company data


13

Financials

Profit and loss account

Year-end December (EUR m) 2011 2012 2013e 2014e 2015e

Sales 2,671 2,212 2,314 2,477 2,648

Cost of sales -2,234 -1,836 -1,833 -1,942 -2,066

Gross profit 438 376 481 535 583

Research and development -10 -12 -12 -12 -12

Other operating expenses -214 -163 -248 -273 -290

EBITDA 214 201 221 250 280

Depreciation -34 -25 -25 -25 -25

EBITA 180 176 196 225 255

EBITA margin 6.7% 8.0% 8.5% 9.1% 9.6%

Amortisation -18 -20 -19 -19 -19

EBIT adjusted 161 156 177 206 237

EBIT adjusted margin 6.0% 7.1% 7.7% 8.3% 8.9%

Non-recurring costs -9 2 0 0 0

EBIT 152 158 177 206 237

Net financial result -28 -20 -21 -20 -18

Share of JVs and associates 14 12 23 24 24

PBT adjusted 166 168 198 229 262

PBT 139 149 179 210 243

Taxes -26 -24 -32 -40 -46

Tax rate 18.7% 16.1% 18.0% 19.0% 19.0%

Discontinued 0 19 0 0 0

Minority interest -1 0 -1 -1 -1

Net income adjusted 136 150 165 188 215

Net income 112 144 146 169 196

Dividend -24 -27 -30 -34 -34

EPS reported (Basic) 38.22 48.92 49.68 57.54 66.68

EPS reported (Diluted) 37.90 48.48 49.23 57.02 66.08

EPS adjusted 45.94 51.02 56.10 63.96 73.10

DPS 8.27 9.09 10.20 11.39 11.39

Source: Company data, Berenberg Bank estimates


14

Balance sheet

Year-end December (EUR m) 2011 2012 2013e 2014e 2015e

Property, plant and equipment 394 309 363 419 455

Intangible assets 269 271 271 271 271

Goodwill 198 202 202 202 202

Investments 71 126 126 126 126

Other non-current assets 38 46 46 46 46

Non-current assets 969 955 1,008 1,064 1,100

Inventories 337 282 285 305 326

Trade receivable 213 176 190 197 210

Other current assets 97 97 95 91 84

Cash and equivalents 231 276 330 398 507

Current assets 879 831 900 991 1,129

TOTAL 1,848 1,785 1,908 2,055 2,229

Shareholders' equity 516 537 653 789 952

Minority interest 7 7 8 9 10

Long-term debt 659 527 527 527 527

Deferred taxes 93 91 91 91 91

Pension provisions 48 98 98 98 98

Provisions 22 22 22 22 22

Other non-current liabilities 18 3 3 3 3

Non-current liabilities 841 741 741 741 741

Short-term debt 53 125 125 125 125

Trade Payables 148 133 139 149 160

Other current liabilities 283 241 241 241 241

Current liabilities 484 500 506 516 526

TOTAL 1,848 1,785 1,908 2,055 2,229



15

Cash flow statement

EUR m 2011 2012 2013e 2014e 2015e

Operating profit 139 149 179 210 243

Depreciation and amortisation 53 45 44 44 44

Other -9 -3 23 24 24

Change in working capital -37 -66 -12 -17 -24

Interest -27 -21 -21 -20 -18

Tax -13 -27 -32 -40 -46

Cash flow from operating activities 106 77 181 202 223

Additions to fixed assets -47 -66 -130 -100 -80

Proceeds from sales of fixed assets 0 0 0 0 0

Acquisitions/disposal of businesses -115 -28 33 0 0

Increase/decrease intangible assets -2 -4 0 0 0

Increase/decrease in investments 17 11 0 0 0

Other investing activities 0 160 0 0 0

Cash flow from investing activities -147 72 -97 -100 -80

Inc/dec in borrowing 66 -45 0 0 0

Net proceeds from sale/issue equity -1 -7 0 0 0

Dividends -23 -26 -30 -34 -34

Other financing activities 0 2 0 0 0

Cash flow from financing activities 41 -75 -30 -34 -34

Net cash flow 1 74 54 68 110

Free cash flow 59 11 51 102 143

Net debt 480 377 323 254 145



16

Contacts: Investment Banking

Equity Research E-mail: [email protected]; Internet www.berenberg.de

BANKS ECONOMICS MID-CAP GENERAL

Nick Anderson +44 (0) 20 3207 7838 Dr. Holger Schmieding +44 (0) 20 3207 7889 Gunnar Cohrs +44 (0) 20 3207 7894

James Chappell +44 (0) 20 3207 7844 Dr. Christian Schulz +44 (0) 20 3207 7878 Bjoern Lippe +44 (0) 20 3207 7845

Andrew Lowe +44 (0) 20 3465 2743 Robert Wood +44 (0) 20 3207 7822 Anna Patrice +44 (0) 20 3207 7863

Eleni Papoula +44 (0) 20 3465 2741 Alexandra Schlegel +44 (0) 20 3207 7896

FOOD MANUFACTURING Stanislaus von Thurn und Taxis +44 (0) 20 3207 2631BEVERAGES Fintan Ryan +44 (0) 20 3465 2748

Philip Morrisey +44 (0) 20 3207 7892 James Targett +44 (0) 20 3207 7873 REAL ESTATE

Josh Puddle +44 (0) 20 3207 7881 Kai Klose +44 (0) 20 3207 7888GENERAL RETAIL & LUXURY GOODS Estelle Weingrod +44 (0) 20 3207 7931

BUSINESS SERVICES Bassel Choughari +44 (0) 20 3465 2675William Foggon +44 (0) 20 3207 7882 John Guy +44 (0) 20 3465 2674 TECHNOLOGY

Simon Mezzanotte +44 (0) 20 3207 7917 Adnaan Ahmad +44 (0) 20 3207 7851Arash Roshan Zamir +44 (0) 20 3465 2636 HEALTHCARE Sebastian Grabert +44 (0) 20 3207 7834

Konrad Zomer +44 (0) 20 3207 7920 Scott Bardo +44 (0) 20 3207 7869 Daud Khan +44 (0) 20 3465 2638

Alistair Campbell +44 (0) 20 3207 7876 Ali Khwaja +44 (0) 20 3207 7852CAPITAL GOODS Charles Cooper +44 (0) 20 3465 2637 Tammy Qiu +44 (0) 20 3465 2673

Frederik Bitter +44 (0) 20 3207 7916 Louise Hinds +44 (0) 20 3465 2747

Benjamin Glaeser +44 (0) 20 3207 7918 Adrian Howd +44 (0) 20 3207 7874 TELECOMMUNICATIONS

William Mackie +44 (0) 20 3207 7837 Tom Jones +44 (0) 20 3207 7877 Wassil El Hebil +44 (0) 20 3207 7862

Margaret Paxton +44 (0) 20 3207 7934 Usman Ghazi +44 (0) 20 3207 7824Alexander Virgo +44 (0) 20 3207 7856 HOUSEHOLD & PERSONAL CARE Stuart Gordon +44 (0) 20 3207 7858

Felix Wienen +44 (0) 20 3207 7915 Seth Peterson +44 (0) 20 3207 7891 Laura Janssens +44 (0) 20 3465 2639

Andrew Steele +44 (0) 20 3207 7926 Paul Marsch +44 (0) 20 3207 7857CHEMICALS Barry Zeitoune +44 (0) 20 3207 7859Jade Barkett +44 (0) 20 3207 7937 INSURANCE

Asad Farid +44 (0) 20 3207 7932 Tom Carstairs +44 (0) 20 3207 7823 TOBACCO

John Philipp Klein +44 (0) 20 3207 7930 Peter Eliot +44 (0) 20 3207 7880 Erik Bloomquist +44 (0) 20 3207 7870

Jaideep Pandya +44 (0) 20 3207 7890 Kai Mueller +44 (0) 20 3465 2681 Kate Kalashnikova +44 (0) 20 3465 2665

Matthew Preston +44 (0) 20 3207 7913CONSTRUCTION Sami Taipalus +44 (0) 20 3207 7866 UTILITIES

Chris Moore +44 (0) 20 3465 2737 Robert Chantry +44 (0) 20 3207 7861

Robert Muir +44 (0) 20 3207 7860 MEDIA Andrew Fisher +44 (0) 20 3207 7937

Michael Watts +44 (0) 20 3207 7928 Robert Berg +44 (0) 20 3465 2680 Oliver Salvesen +44 (0) 20 3207 7818

Emma Coulby +44 (0) 20 3207 7821 Lawson Steele +44 (0) 20 3207 7887DIVERSIFIED FINANCIALS Laura Janssens +44 (0) 20 3465 2639

Pras Jeyanandhan +44 (0) 20 3207 7899 Sarah Simon +44 (0) 20 3207 7830

Richard Perrott +44 (0) 20 3207 7925

Sales

Specialist Sales E-mail: [email protected]; Internet www.berenberg.de

CONSUMER HEALTHCARE UTILITIES

Rupert Trotter +44 (0) 20 3207 7815 Frazer Hall +44 (0) 20 3207 7875 Benita Barretto +44 (0) 20 3207 7829

INSURANCE TECHNOLOGY INDUSTRIALS

Trevor Moss +44 (0) 20 3207 7893 Jean Beaubois +44 (0) 20 3207 7835 Chris Armstrong +44 (0) 20 3207 7809Kaj Alftan +44 (0) 20 3207 7879

LONDON HAMBURG

Miel Bakker +44 (0) 20 3207 7808 Susette Mantzel +49 (0) 40 350 60 694 Sales Trading

John von Berenberg-Consbruch +44 (0) 20 3207 7805 Marco Weiss +49 (0) 40 350 60 719 HAMBURG

Ronald Bernette +44 (0) 20 3207 7828 Paul Dontenwill +49 (0) 40 350 60 563

Matt Chawner +44 (0) 20 3207 7847 PARIS Christian Endras +49 (0) 40 350 60 359

Toby Flaux +44 (0) 20 3465 2745 Christophe Choquart +33 (0) 1 5844 9508 Gregor Labahn +49 (0) 40 350 60 571

Sean Heath +44 (0) 20 3465 2742 Dalila Farigoule +33 (0) 1 5844 9510 Chris McKeand +49 (0) 40 350 60 798

David Hogg +44 (0) 20 3465 2628 Clémence La Clavière-Peyraud +33 (0) 1 5844 9521 Fin Schaffer +49 (0) 40 350 60 596

Ben Hutton +44 (0) 20 3207 7804 Olivier Thibert +33 (0) 1 5844 9512 Lars Schwartau +49 (0) 40 350 60 450

James Matthews +44 (0) 20 3207 7807 Marvin Schweden +49 (0) 40 350 60 576

David Mortlock +44 (0) 20 3207 7850 ZURICH Tim Storm +49 (0) 40 350 60 415

Peter Nichols +44 (0) 20 3207 7810 Stephan Hofer +41 (0) 44 283 2029 Philipp Wiechmann +49 (0) 40 350 60 346

George Smibert +44 (0) 20 3207 7911 Carsten Kinder +41 (0) 44 283 2024

Max von Doetinchem +44 (0) 20 3207 7826 Gianni Lavigna +41 (0) 44 283 2038 LONDON

Paul Walker +44 (0) 20 3465 2632 Benjamin Stillfried +41 (0) 44 283 2033 Stewart Cook +44 (0) 20 3465 2752

Simon Messman +44 (0) 20 3465 2754CRM Stephen O'Donohoe +44 (0) 20 3465 2753

FRANKFURT LONDON

Michael Brauburger +49 (0) 69 91 30 90 741 Greg Swallow +44 (0) 20 3207 7833 PARIS

Nina Buechs +49 (0) 69 91 30 90 735 Laura Cooper +44 (0) 20 3207 7806 Sylvain Granjoux +33 (0) 1 5844 9509

André Grosskurth +49 (0) 69 91 30 90 734

Boris Koegel +49 (0) 69 91 30 90 740 CORPORATE ACCESS EVENTS

Joachim Kopp +49 (0) 69 91 30 90 742 LONDON LONDON

Patricia Nehring +44 (0) 20 3207 7811 Natalie Meech +44 (0) 20 3207 7831

Charlotte Kilby +44 (0) 20 3207 7832

Charlotte Reeves +44 (0) 20 3465 2671Hannah Whitehead +44 (0) 20 3207 7922

US Sales E-mail: [email protected]

BERENBERG CAPITAL MARKETS LLC

Member FINRA & SIPC Andrew Holder +1 (617) 292 8222 Kelleigh Faldi +1 (617) 292 8288

Colin Andrade +1 (617) 292 8230 Kieran O'Sullivan +1 (617) 292 8292

Cathal Carroll +1 (646) 445 7206 Emily Mouret +1 (646) 445 7204

Burr Clark +1 (617) 292 8282 Jonathan Saxon +1 (646) 445 7202

Julie Doherty +1 (617) 292 8228


17

Please note that the use of this research report is subject to the conditions and restrictions set forth in the “General investment-related disclosures” and the “Legal disclaimer” at the end of this document.

For analyst certification and remarks regarding foreign investors and country-specific disclosures, please refer to the respective paragraph at the end of this document.

Disclosures in respect of section 34b of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG)

Company Disclosures Glanbia plc no disclosures (1) Berenberg Bank or its affiliate(s) was Lead Manager or Co-Lead Manager over the previous 12 months of a

public offering of this company. (2) Berenberg Bank acts as Designated Sponsor for this company. (3) Over the previous 12 months, Berenberg Bank and/or its affiliate(s) has effected an agreement with this

company for investment banking services or received compensation or a promise to pay from this company for investment banking services.

(4) Berenberg Bank and/or its affiliate(s) holds 5% or more of the share capital of this company. (5) Berenberg Bank holds a trading position in shares of this company. (6) Berenberg Bank and/or its affiliate(s) holds a net short position of 1% or more of the share capital of this

company, calculated by methods required by German law as of the last trading day of the past month. Historical price target and rating changes for Glanbia plc in the last 12 months (full coverage)

Date Price target - EUR Rating Initiation of coverage

02 April 12 6.90 Buy 12 April 11

02 November 12 8.65 Buy

21 January 13 9.50 Buy

19 March 13 9.70 Buy

Berenberg distribution of ratings and in proportion to investment banking services

Buy 44.47 % 63.33 % Sell 17.51 % 6.67 % Hold 38.03 % 30.00 %

Valuation basis/rating key

The recommendations for companies analysed by Berenberg Bank’s equity research department are either made on an absolute basis (“absolute rating system”) or relative to the sector (“relative rating system“), which is clearly stated in the financial analysis. For both absolute and relative rating system, the three-step rating key “Buy”, “Hold” and “Sell” is applied. For a detailed explanation of our rating system, please refer to our website at

http://www.berenberg.de/research.html?&L=1

NB: During periods of high market, sector or stock volatility, or in special situations, the rating system criteria as described on our website may be breached temporarily.

Competent supervisory authority

Bundesanstalt für Finanzdienstleistungsaufsicht -BaFin- (Federal Financial Supervisory Authority), Graurheindorfer Straße 108, 53117 Bonn and Lurgiallee 12, 60439 Frankfurt am Main

http://www.berenberg.de/research.html?&L=1


18

General investment-related disclosures Joh. Berenberg, Gossler & Co. KG (“Berenberg Bank”) has made every effort to carefully research all information contained in this financial analysis. The information on which the financial analysis is based has been obtained from sources which we believe to be reliable such as, for example, Thomson Reuters, Bloomberg and the relevant specialised press as well as the company which is the subject of this financial analysis. Only that part of the research note is made available to the issuer (who is the subject of this analysis) which is necessary to properly reconcile with the facts. Should this result in considerable changes a reference is made in the research note.

Opinions expressed in this financial analysis are our current opinions as of the issuing date indicated on this document. The companies analysed by Berenberg Bank are divided into two groups: those under “full coverage” (regular updates provided); and those under “screening coverage” (updates provided as and when required at irregular intervals).

The functional job title of the person/s responsible for the recommendations contained in this report is “Equity Research Analyst” unless otherwise stated on the cover.

The following internet link provides further remarks on our financial analyses: http://www.berenberg.de/research.html?&L=1&no_cache=1

Legal disclaimer This document has been prepared by Berenberg Bank. This document does not claim completeness regarding all the information on the stocks, stock markets or developments referred to in it. On no account should the document be regarded as a substitute for the recipient procuring information for himself/herself or exercising his/her own judgements.

The document has been produced for information purposes for institutional clients or market professionals. Private customers, into whose possession this document comes, should discuss possible investment decisions with their customer service officer as differing views and opinions may exist with regard to the stocks referred to in this document.

This document is not a solicitation or an offer to buy or sell the mentioned stock.

The document may include certain descriptions, statements, estimates, and conclusions underlining potential market and company development. These reflect assumptions, which may turn out to be incorrect. Berenberg Bank and/or its employees accept no liability whatsoever for any direct or consequential loss or damages of any kind arising out of the use of this document or any part of its content.

Berenberg Bank and/or its employees may hold, buy or sell positions in any securities mentioned in this document, derivatives thereon or related financial products. Berenberg Bank and/or its employees may underwrite issues for any securities mentioned in this document, derivatives thereon or related financial products or seek to perform capital market or underwriting services.

Analyst certification I, James Targett, CFA, hereby certify that all of the views expressed in this report accurately reflect my personal views about any and all of the subject securities or issuers discussed herein.

In addition, I hereby certify that no part of my compensation was, is, or will be, directly or indirectly related to the specific recommendations or views expressed in this research report, nor is it tied to any specific investment banking transaction performed by Berenberg Bank or its affiliates.

I, Fintan Ryan, hereby certify that all of the views expressed in this report accurately reflect my personal views about any and all of the subject securities or issuers discussed herein.

In addition, I hereby certify that no part of my compensation was, is, or will be, directly or indirectly related to the specific recommendations or views expressed in this research report, nor is it tied to any specific investment banking transaction performed by Berenberg Bank or its affiliates.

http://www.berenberg.de/research.html?&L=1&no_cache=1


19

Remarks regarding foreign investors The preparation of this document is subject to regulation by German law. The distribution of this document in other jurisdictions may be restricted by law, and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions.

United Kingdom This document is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers.

United States of America This document has been prepared exclusively by Berenberg Bank. Although Berenberg Capital Markets LLC, an affiliate of Berenberg Bank and registered US broker-dealer, distributes this document to certain customers, Berenberg Capital Markets LLC does not provide input into its contents, nor does this document constitute research of Berenberg Capital Markets LLC. In addition, this document is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers.

This document is classified as objective for the purposes of FINRA rules. Please contact Berenberg Capital Markets LLC (+1 617.292.8200), if you require additional information.

Third-party research disclosures

Company Disclosures Glanbia plc no disclosures (1) Berenberg Capital Markets LLC owned 1% or more of the outstanding shares of any class of the subject

company by the end of the prior month.* (2) Over the previous 12 months, Berenberg Capital Markets LLC has managed or co-managed any public

offering for the subject company.* (3) Berenberg Capital Markets LLC is making a market in the subject securities at the time of the report. (4) Berenberg Capital Markets LLC received compensation for investment banking services in the past 12

months, or expects to receive such compensation in the next 3 months.* (5) There is another potential conflict of interest of the analyst or Berenberg Capital Markets LLC, of which the

analyst knows or has reason to know at the time of publication of this research report.

* For disclosures regarding affiliates of Berenberg Capital Markets LLC please refer to the ‘Disclosures in respect of section 34b of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG)’ section above.

Copyright Berenberg Bank reserves all the rights in this document. No part of the document or its content may be rewritten, copied, photocopied or duplicated in any form by any means or redistributed without Berenberg Bank’s prior written consent.

© June 2012 Berenberg Bank

2013 mar 19 — glanbia plc

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