It’s hard to pinpoint exactly what’s gone wrong at Glanbia.
There are several partial explanations, but no real smoking gun, nothing that can fully explain why the company’s share price is now back at the same level it was 12 years ago (€11) when the group today is larger with more assets.
Or why the Kilkenny-based nutritionals group has shed more than €2 billion in market value in less than 10 months despite holding one of the bestselling protein powder brands on the market in Optimum Nutrition, sponsor of the McLaren Formula One team.
Protein powders used to be the preserve of bodybuilders and workout fanatics, now every Tom, Dick and Harry is using them and the company should be prospering as a result.
Critics say Glanbia is primarily a B2B (business-to-business) ingredients company that has strayed too far from its core competencies.
Said another way, it is not good at managing consumer-facing brands. Glanbia’s performance nutrition business, which accounts for more than half of earnings, is made up of several add-on brands (Optimum Nutrition, Isopure, BSN, Nutramino, Think Thin, SlimFast, LevlUp, Body&Fit) that it has picked up along the way, most of which have declined in value since entering the Glanbia stable.
Even its prize pony, Optimum Nutrition, is said to be operating below potential.
One institutional shareholder says the company does not have the distribution channels of a Coca-Cola or a Nestlé to get these products to consumers and that’s why they have failed to fire.
That distribution channel issue may also explain why it has been slow to move beyond basic powders and into the fast-growing protein drinks market.
Another line of criticism suggests the company has simply presided over a string of bad buys, which have failed to add value to the group. The market values these acquisitions at a fraction of the price the company paid for them.
These deals culminated in the acquisition of weight-loss brand SlimFast in 2018 for $350 million (€309 million). The company reported a non-cash impairment charge of $91 million last year relating to declining sales at its SlimFast unit.
The SlimFast fad of the 1980s and 1990s has waned, not least because of concerns about replacing wholefoods with highly processed synthetic shakes – a no-no for nutritionists.
Consumers are also opting for more active weight-loss programmes rather than passive meal-replacement regimes, calling into question Glanbia’s purchase of the brand in the first place.
SlimFast is now the subject of a fire-sale auction and is likely to sell for a fraction of the $350 million Glanbia paid for the business.
The company clearly doesn’t think it has a bad M&A (mergers and acquisitions) report card as it elevated the man responsible for most of these deals, Hugh McGuire (formerly the head of the company’s performance nutrition division), to the top job last year. He succeeded Siobhán Talbot in the top role.
[ Cantillon: Glanbia’s top brass feel the ire of shareholdersOpens in new window ]
The third and perhaps most trenchant line of criticism, and the one that a growing number of institutional investors have latched on to, is that the company has become an unwieldy “Frankenstein”.
Glanbia’s complex corporate structure, which oversees three disparate businesses in the sports nutrition, ingredients and dairy categories, has become too difficult to manage, they say.
The company’s communications team spends a lot of time explaining the various parts and where they sit.
“The sprawling corporate structure with a lot of moving parts, three very good, excellent but very different businesses make Glanbia very hard to value, complicated to understand and possibly and arguably difficult to manage,” the head of Clearway Capital, Gianluca Ferrari, told the company’s AGM in the Kilashee Hotel in Co Kildare this week.
Clearway Capital holds about 1 per cent of Glanbia shares.
“There’s an obvious solution to this: separate the businesses,” Ferrari said.
Glanbia has long maintained that a strategy of diversification would help insulate the business, but investors now highlight this as a key weakness.
Ferrari said “the argument that diversification would shield the business from volatility has proved to be blatantly false”.
“The structure itself is causing the volatility [in the share price],” he said.
The assertion comes after the company’s recent profit warning, linked to higher-than-expected whey prices, which are expected to knock $75 million off annual earnings (roughly 13 per cent), triggered an immediate 25 per cent downturn in the share price.
Ferrari’s point is that Glanbia’s messy conglomerate structure is amplifying these shocks rather than limiting them.
Of course, the ugliest metric and the one raised by several disgruntled shareholders at the AGM relates to the generous pay and bonuses doled out to those who have presided over this underperformance.
Glanbia has paid €81 million in total director remuneration over the past decade. This has coincided with what Roland French of Penman Securities, another institutional investor, said was a total shareholder return, including dividends, of “minus” 36 per cent.
“If you benchmark this globally whether that’s Euro Stoxx or S&P, that’s in the bottom decile in a 10-year performance context,” he said.
“A 10-year performance window should be more than sufficient for any board of directors to conclude something is not functioning.”
Glanbia gave Talbot a parting salary plus bonus of €8 million in 2023. The group’s chief financial officer Mark Garvey, still in situ, took home €3.6 million that year.
Talbot, the person at the helm for most of the past 10 years, got out before the current storm, leaving her successor, McGuire, firmly in the crosshairs of angry shareholders.
McGuire insists the company is on the back foot because of an unprecedented surge in whey prices, which he described as a “perfect storm of demand and supply”, but one which is also “cyclical”.
“Whey costs rose last year and continued to rise in January and February of this year to reach record levels,” the company said in response to a query.
“We have never seen this level of dairy inflation before. We have done a lot of work around mitigating the impact of this inflation and, as we said this morning, we have seen whey protein isolate come off its peak pricing.”
At the AGM, Kilkenny dairy farmer Michael O’Carroll hit back at the company’s suggestion that it was caught out by the high cost of whey, saying that if Ryanair chief Michael O’Leary said the company’s share price had been halved “because he hadn’t hedged his fuel price, he’d be sacked in the morning”.
The company also defends its M&A record, suggesting the “return on capital” is a closely watched metric.
“Glanbia’s average return on capital employed metric (ROCE) for the last three years is well within our medium-term target range 10-13 per cent,” it said.
“We have taken the decision to sell two brands {SlimFast and Body&Fit] in line with our commitment to continuous evaluating our portfolio.
“The rationale for both divestments is clear and is linked to changing consumer behaviour around weight loss in the case of SlimFast and the changing economics of owning a direct-to-consumer ecommerce platform in the case of Body&Fit.”
It also noted that Optimum Nutrition and Isopure have performed “very well”.
The big beast among shareholders and the one that has sat silently while Glanbia’s share price has plunged over the last year is Tirlán, the farmer-led co-op that operates the group’s legacy dairy business here, which was spun-out in a series of transactions over the past decade.
Tirlán owns 29 per cent of Glanbia. One investor called it a one-stock hedge fund.
He wrote that a “fundamental strategic review focused on separating Glanbia’s distinct business units is not only overdue but essential”.
“With the upcoming Glanbia and Tirlán AGMs in April and May 2025 respectively, there is a critical window of opportunity to signal to all stakeholders that Glanbia’s largest shareholder is committed to restoring value and strategic clarity,” his letter said.
Tirlán’s AGM’s next week might prove fierier than Glanbia’s for two reasons.
The co-op is spinning out Glanbia shares to members. The plan was announced when Glanbia shares were trading at close to €16, meaning the average member payout would have been €24,600. Now they will be receiving significantly less, 30 per cent less.
On top of that, Tirlán has issued a convertible bond that matures in January 2027. Owners of the bond can convert their holding – on maturity – into Glanbia shares at a guaranteed conversion price. If the Glanbia share price is lower than €16.43, then Tirlán will be forced to make up the difference in cash.
The guaranteed conversion price looked like an decent bet a few years ago, but with Glanbia shares down at €11 that’s not the case any more. Ironically, the poor performance of Glanbia shares means Tirlán may be forced to further dilute its shareholding in Glanbia to fund the payout of its bond.
That said, Tirlán, as Glanbia’s largest shareholder, has the power to force change upon the board. Whether it will join other institutional shareholders in calling for the company to be split up remains to be seen, but the status quo is getting harder and harder to justify.
