Nomad Foods Limited

Good day and welcome to the Nomad Foods third quarter 2020 earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the call over to Tepoche Berry, Head of Investor Relations. Please go ahead.

Thank you for joining us to review our third quarter 2020 earnings results. With me on the call today are Chief Executive Officer Stefan Descheemaeker and Chief Financial Officer Sammy Zickaut. 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, expectations, and intentions at this time, including consideration related to the impacts from COVID-19. Actual results may differ due to risks and uncertainties, which are discussed in our press release, our followings 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 does represent adjusted figures for 2019 and 2020. And all adjusted figures have been adjusted for exceptional items, acquisition-related, share-based payment, and related expenses, as well as non-cash FX gains or losses. And all comments from here on will refer to those adjusted numbers. With that, I will hand the call over to Stefan.

Thank you, Taposha, and thank you all for joining us on the call today. I hope you and your loved ones remain well as we all continue to manage through these unprecedented times. As has been the case since the initial onset of the COVID-19 pandemic, we continue to prioritize the health and safety of our employees while ensuring the continued operation of our factories and meeting the needs of our consumers. With the number of confirmed cases rising across Europe, we will need to remain vigilant more than ever by sustaining the discipline and agility that has enabled us to navigate thus far. Moving on to our results, we reported third quarter earnings earlier today, which demonstrated continued momentum in the business with robust growth in our branded retail portfolio, offset by declines in food service and private label. Third quarter financial highlights were as follows. Organic revenue growth of 5.4%, driven by a 4.2% increase in volume and mix, and a 1.2% increase in price. This performance was in line with the guidance of mid-single-digit organic growth for the back half of this year. Growth margin of 30.4%, reflecting 90 basis points of expansion. adjusted EBITDA growth of 13% to 109 million euro and adjusted EPS growth of 20% to 30 euro cents per share. We sustained strong performance in the third quarter even as countries began to relax their restrictions and consumers learned to coexist with the virus. Offices, schools and restaurants gradually reopened across Europe this summer while other factors like unceasingly warm weather and the UK's Eat Out to Help Out campaign reignited auto-farm consumption during the month of August. As a result, there was a clean moderation of growth in packaged food, frozen savory, and our business relative to the extraordinary growth that we experienced in Q2. Nevertheless, we were pleased to see no mad outgrowth both total frozen savory and packaged foods during the third quarter. A testament to the value that our portfolio of family favorites is providing consumers during these unprecedented times. While COVID-19 continues to create a tailwind for companies like ours, we estimate that its uplift to our Q3 results was relatively small and a fraction of what it was in Q2 due to some of the aforementioned factors. What that implies, however, is that the underlying momentum in our business has accelerated every quarter this year. With that said, as a number of cases surges across Europe, governments are resuming restrictions, and we are beginning to see early signs of re-accelerated rates of consumption growth. This is something that we will continue to monitor closely, and we have prepared our supply chain with high levels of safety stock across the board. Let's turn to some additional highlights of the quarter on slide five. As the COVID-19 pandemic extends into its eighth month, it's increasingly clear that many of the new consumers who entered our portfolio during the March, April, and May months are repurchasing our brands and are recognizing the value that frozen food has to offer. Our aim is to directly engage these new consumers through increased A&P investment in the coming months and to ultimately retain many of them in 2021 and beyond. Between the significant amount of new trials that we are experiencing and the enhancements that we have made to our portfolio under Nomad ownership, we believe we are uniquely positioned in a post-COVID world. Our gross margin expanded 90 basis points during the quarter, driven by a combination of pricing, favorable mix, and fixed cost leverage. I'm also happy to share that our pea and spinach harvest met our expectation this season, providing the necessary supply to help achieve our goals for the coming year. We're pleased to see an upward trajectory in our gross margin as the inflationary headwinds for the past two years abate. Moving on, we continue the expansion of green cuisine during the quarter. In the UK, our largest and most advanced market, we demonstrated growth on growth by reaching a new record market share of 7% within the frozen plant protein category. We're building on our position as the number three brand in the space and establishing strong strategic partnership with many of our top retailers. From a distribution perspective, we enter three new markets during the quarter, Portugal, Sweden, and Finland, and are now happy to announce that green cuisine is currently available across 12 of our European markets. We activated a new multi-channel advertising campaign across several European markets during the quarter to drive trailer and awareness. And finally, we launched a new range of chicken-free poultry products which are demonstrating strong initial sales velocity early on. As you know, Green Cuisine is a multi-country, multi-dimensional brand whose goal is to make meat-free mealtime easy and affordable for consumers. By the end of this year, we will have 28 Green Cuisine SKUs across Europe that we have either developed or rebranded. It's quite an achievement and we look forward to elevating this part of our business even further in the coming year. Finally, we returned $467 million of capital to shareholders during the third quarter, the majority of which was executed through a successful tender offer in mid-September. Year to date, we have purchased approximately $600 million of equity, which represents a 14% reduction in our share count versus the start of the year. Our capital structure is now realigned to a strategy of consistent organic growth coupled with complementary acquisitions within European frozen. We remain active on the M&A front and look forward to updating you in due course. We have the financial flexibility to pursue this objective and in the meantime continue to generate strong free cash flow. I'd like to provide an update on our sustainability commitments where we're making great progress. I'm proud to share the news that we recently joined the 10-20-30 initiative, a collaboration of more than 10 of the world's biggest food retailers and manufacturers, each committing to engage in a whole supply chain approach to halving food loss and waste by 2030. We believe that our influence within the food industry makes us perfectly positioned to raise awareness of the issue and lead the way in achieving the UN Sustainable Development Goals for 50% reduction in food loss and waste worldwide by 2030. And we're looking forward to sharing future updates on our progress. We have also achieved the SAI platform Farm Sustainability Assessment Goal level for PFARM Management Group. I'm incredibly proud to confirm that we are the first UK farm management group and the first global in frozen food to be awarded the gold level. This is a major milestone for agriculture team in the UK underpinning our commitment to sourcing 100% of our vegetables and potatoes through sustainable farming practices by the end of 2025. We're pleased with the progress that we're making along the sustainability goals, which we expect will help drive our societal objectives and support longer-term financial performance. Staying on the theme of sustainable financial performance, I would like to share with you some preliminary thoughts on 2021, which I'm sure is an area of interest for many of you. There are a number of moving pieces including how the pandemic may affect the balance of this year. And the guidance that Sami will outline in his remarks does not yet include the potential impact from the recent COVID-related restrictions across Europe. Having said that, we have strong underlying momentum supported with investments behind our core portfolio, green cuisine and consumer retention. and we expect these actions to yield strong return next year. Taking all this into consideration, I am pleased to share today that our current 2021 plans show organic revenue, adjusted EBITDA and adjusted EPS growth when compared to the current 2020 consensus. This outcome would build on the extraordinary performance achieved this year while making a considerable acceleration on a two-year basis. Importantly, it would make Nomad one of the few companies delivering growth before, during, and after the COVID-19 pandemic. As we always do, we will share more detailed guidance when we report Q4 results in early 2021. We plan to articulate our long-term strategy and growth drivers when we host our first ever Investor Day to be held virtually next Tuesday, November 10th. This will be a unique opportunity for the investment community to hear from members of our management team, beyond myself and Sami, and to learn about the breadth and depth of our business model. We're excited to bring the Nomad story to life and hope you can join us for this engaging and unique session. Now over to Sami to review our financial performance and guidance in more detail.