Nomad Foods Limited

Good day and welcome to the Nomad Foods first quarter 2020 earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the call over to Tapash Bari, head of investor relations. Please go ahead.

Thank you for joining us to review our first quarter 2020 earnings results. With me on the call today, our chief executive officer, Stefan Descheemaeker, and Chief Financial Officer Sami Zaykoud. Before we begin, I would like to draw your attention to the disclaimer on slide two of our presentation. This conference call may make forward-looking statements that are based on our view of the company's prospects at this time, including consideration related to the impacts of COVID-19. Actual results may differ due to risks and uncertainties which are discussed in our press release. Our filings with the SEC and this slide in our investor presentation which includes cautionary language. We will also discuss non-IFRS financial measures during the call today. These non-IFRS financial measures should not be considered a replacement for and should be read together with IFRS results. Users may find the IFRS to non-IFRS reconciliations within our earnings release and in the appendices at the end of the slide presentation available on our website. Please note that certain financial information within this presentation represents adjusted figures for 2019 and 2020. All adjusted figures have been adjusted for exceptional items, acquisition related, share based payment and related expenses as well as non-cash foreign exchange gains or losses. All comments from here on will refer to those adjusted numbers. And with that, I will hand the call over to Stefan.

Thank you, Tapush, and thank you all for joining us on the call today. On behalf of our entire organization, I would like to extend our thoughts to those affected by COVID-19 and hope that you and your families are staying safe. At Nomad Foods, we have been working hard to ensure the continuous supply of frozen food to consumers across Europe during this time of need. From day one, we have done this with the health and safety of our employees as our top priority. I'm extremely proud of the collective effort our entire organization has made to act quickly and decisively. I speak for all of us when I say that we are humbled to help our communities navigate this crisis. Turning now to first quarter results, which came in well ahead of expectations due to an unprecedented level of consumer demand beginning in early March. Highlights from the first quarter were as follows. Organic revenue growth of 7.7% driven by a 6.3% increase in volume and mix and a 1.4% increase in price. Gross margin of 29.1% which was in line with our expectations. Adjusted EBITDA 120 million euro and adjusted EPS of 33 euro cents per share. Based on our first quarter results and our expectation that sales growth will remain elevated for at least the next several weeks, we now expect to exceed our full year guidance. Sami will walk you through the details of our guidance in his remarks. I'm sure many of you are looking to better understand how we're managing the business throughout this crisis and what we are doing to ensure that we will emerge in an even stronger position. I will address these points in three sections. First, I will cover the near term, outlining how we have adapted our business to service an elevated level of demand throughout the home confinement period. Second is the medium term and how we plan to navigate through these next few months as restrictions gradually ease. And third, the long term, specifically what we are doing to ensure that our business is on an even stronger foundation once we ultimately return to some sense of normality, whenever that may be. Let's begin with the near term on slide four. Given the unprecedented nature of the current environment, we thought it would be helpful to provide you with the weekly view of the sellout progression across our branded retail business, which represents 90% of our sales. The remaining 10% of our sales are comprised of private labor and food service, which each represent roughly 5% of the total sales. It's important to know that the data on this slide represent branded retail sellout growth, which may not align perfectly with organic revenue growth for a variety of reasons. But this should give you an indicative direction of view. You will notice that we had an okay January, and so sales beginning to accelerate in February, which was our original plan. and clearly the surge which followed in March as stay-at-home orders and school closing went into effect. Since the growth peak in mid-March, it was likely driven by pantry loading, we have experienced a continued elevated level of demand throughout April, which we believe reflects growth of in-home consumption. You will notice a dip in week 16, which was depressed due to Easter phasing. When triangulating this sellout data with our five weeks of actual Q2 sales results, it is clear that performance continues to trend ahead of plan. And while we expect this may continue for at least the next few weeks, it is very difficult to project the future trajectory with accuracy. Turning to slide five, I'd like to provide some more color on the new term. As you recall, our original expectation for Q1 was that organic revenue growth would be roughly flat versus last year. We were firmly on pace to deliver against these plans as of late February. However, the pace of demand increased meaningfully throughout the month of March, with organic revenue growth for the month growing roughly 20 percentage points ahead of our plan. In terms of insights, it's clear that early on the growth spike was a result of consumers stocking up. However, as time has passed and people have remained relatively confined to their homes, our research is showing that people are opening their freezers and consuming our products. Another insight is that we are seeing an influx of new consumers into the category. This is largely driven by the significant shift to at-home consumption, natural role that our leading and trusted brands play in serving family meals. And finally, our brands have observed a disproportionate uptick in market share. This has been evident fairly broadly at both country and category level across our business. During the month of March, Our market share was up one percentage point, an notable improvement versus being roughly flat over the preceding 52-week period. We believe the increase in market share has primarily been driven by the fact consumers tend to buy brands they trust in moments of uncertainty. This is particularly the case for new consumers entering the category. In all, this progression is a validation of the power and awareness that all brands have in their local markets. This brings me to our supply chain, which has done an incredible job in not only keeping up with demand, but doing it in a way that has protected the health and safety of our factory employees. We took a number of decisive actions at the onset of this crisis, to ensure that we can deliver against all goals. In Italy, we were one of the first companies to use thermographic cameras at factory entrances. In January, as we noticed delays in Chinese production of Pollock, our procurement team quickly increased our cover position from other countries to ensure adequate raw material stocks. These examples plus many more have allowed us to maintain a high service level throughout the crisis. Despite our best efforts to keep up with demand, the reality is that there is a significant amount of pressure on our supply chain. As such, we have reduced near-term marketing and promotion plans with the goal of reactivating these programs in the back half of the year. There has been a lot of coverage lately around how COVID-19 may impact agricultural supplies, even farmer dependence on migrant workers and potential labor shortages. This is a risk that we have been monitoring for some time and one that we do not expect to impact our business for two important reasons. First, our main crops, peas, spinach, and potatoes, are picked using machinery and are not labor intensive like certain other fruits and vegetable crops. Second, we have strong relationships with our farmers, many of which have spanned multiple generations. These farmers tend to have secure labor forces and as a result are not as dependent on immigrant labor. To recap the new term, we have observed strong demand since March with elevated growth remaining into April. Our factories are all operational and are working at full capacity to maximize throughput. Let's now shift to how we're preparing for the medium-term outlook over the next several months as restrictions ease and out-of-home consumption begins to normalize. As you can imagine, there are a lot of unknowns as the progression will be dictated by global and local health authorities. Certain European countries have recently announced plans to gradually reopen schools and restaurants. With that said, it's probably fair to say that this next phase will likely be prolonged. We will navigate through these next few months with a strong set of plans that include merchandising, innovation, promotions, and traditional support to help sustain demand. Another consideration is the macroeconomic backdrop that we expect to see once restrictions begin to ease. Given the number of puts and takes, we are preparing for a range of scenarios, including the probability of a recession. As we've seen throughout this crisis, frozen food is a resilient category with a stronger consumer value proposition. History shows that during periods of economic uncertainty, consumers trade down into frozen while also being more price conscious. Taking these factors into consideration, we expect that our business will prove resilient in a recessionary environment as it has throughout the COVID-19 crisis. Finally, the long-term implications. While our current focus is on managing through this crisis with solid day-to-day execution, we are also planning and acting to ensure that our business exits this period with a healthier foundation than when it entered. There will be some permanent changes that we will lead into. These include the step change in e-commerce, where our category and our brands have structurally higher market share. Another is the fact that freezer capacity has increased at the consumer level. We also recognize there has been an influx of new shoppers into the frozen food category, with many of them trying frozen food for the first time in years. While some of the eating occasions are likely to return to out of home as schools, work, and restaurants gradually reopen, we do believe There is an opportunity to convert new frozen food eating habits into permanent repeat consumption. We know that frozen food has a lot to offer, not only in crisis time, but for everyday life. And we're confident that as consumers eat more frozen foods, that they will recognize the many benefits, whether they be nutrition, convenience, quality improvements, or innovative meat-free solutions. Speaking of meat-free, I'd like to provide you with an update on Green Cuisine, our new meat-free sub-brand that we are launching across Europe. At Cagney, back in February, we announced our intention to develop this into at least a 100 million euro business by 2022. As we sit here two months later, I'm pleased to say that we remain on track to deliver on-air and long-term targets despite some timing shifts. resulting from the COVID-19 crisis. Our original plan was to have distribution of green cuisine across at least eight markets by mid-year. This is still the plan, albeit with some modifications given the general deprivatization on innovation as retailers and suppliers focus on the highest volume skews. Year to date, we have launched green cuisine in Germany, France, Netherlands, Italy and Spain. Belgium and Austria will soon follow. One adjustment that we have had to make around green cuisine is the timing of media, which was originally scheduled to go live this spring, which will now take place during the second half of the year. The performance of green cuisine in the UK, where we first launched a year ago, continues to be very strong and encouraging. Sales are tracking ahead of plan, and our market share continues to grow. Further, we are driving solid incrementality to the category through the recruitment of new consumers. In all, green cuisine remains a key strategic priority of ours, and while our plans have shifted a bit this year, we are exceeding our need-term sales expectations and remain on pace to deliver our 2022 targets. In summary, we report a strong first quarter and no expect upside to our original guidance. Our business has demonstrated extreme resilience throughout the COVID-19 crisis. This is being driven by solid execution and the fact that our portfolio is highly concentrated in frozen foods sold in Western Europe. Further, our exposure to food service is only 5% of our revenues. We're gaining new consumers and are seeing growth in market share, and our supply chain is working hard to keep up with strong demand. Finally, our strong balance sheet and liquidity profile create a unique opportunity to repurchase shares during the first quarter amidst the valuation dislocation in our share price. We're pleased to be in a position to deploy cash to shareholders in a value-enhancing manner. Our company is well positioned to not only navigate the current crisis, but emerge in a structurally stronger place. With that, I will hand the call over to Sami to discuss the financials and guidance in more detail. Sami?