This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk10: Greetings and welcome to Nomad Foods' fourth quarter and full year 2021 earnings call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Seamus Murphy, Group Finance Director. Thank you. You may begin.
spk06: Hello. and welcome to the Nomad Foods fourth quarter 2021 earnings call. I'm Seamus Murphy, Group Finance Director, and I'm joined on the call by our CEO, Stefan Deschmaker, and our CFO, Sam Ezekiel. Before we begin, I would like to draw your attention to the disclaimer on slide two of our presentation. This conference call may include forward-looking statements that are based on our view of the company's prospects, expectations, and intentions at this time. Actual results may differ due to risks and uncertainties which are disclosed 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 reconsidered a replacement for and should be read together with our IFRS results. Users can 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 represent adjusted figures for 2020 and 2021. All adjusted figures have been adjusted for exceptional items, acquisition-related, share-based payments, and related expenses, as well as non-cash FX gains or losses. Unless otherwise noted, all comments from here on will refer to those adjusted numbers. With that, I will hand over to Stéphane.
spk00: Thank you, Seamus, and thank you all for joining us on the call today. We're pleased to report our results for the fourth quarter and full year 2021 in line with the high end of our prior guidance range and marking a fifth consecutive year of growth on revenue, adjusted EBITDA, and adjusted EPS. This was a great achievement for the team, overcoming a series of macro challenges throughout the year and reinforcing the resilience of our business model and the strength of our brands. In the face of a volatile market backdrop, we prioritized our attention to areas of the business where we could have the most control. Specifically, we sharpened our consumer proposition while strengthening our supply chain through process improvement and targeted investments. We also took the opportunity to materially lower our cost of capital through a successful debt refinancing. This was concurrent with the acquisition and integration of two significant acquisitions, which continued the development of our brand portfolio and expanded the European footprint to the high-growth and Adriatic region. With that, I'd like to recap our 2021 key financial metrics, beginning with reported revenues of €2.6 billion, which increased by 3.6% compared to 2020, and 6% on a two-year casual basis. Full-year organic revenues were in line with our guidance and declined 2.1%, as we compare against strong 2020 results and navigated the volatile market through 2021. Importantly, it's worth noting on the two-year CAGR basis, organic revenues increased 3.2% as we consolidated our consumer wins from 2020. We delivered a robust adjusted gross margin of 28.9%, which was 140 basis pounds lower year-on-year, reflecting the impact of acquisitions as well as raw material and utilities inflation through the second half of the year and the normalizing of promotional activity adjusted EBITDA of 487 million euro represents four percent growth compared to last year in a six percent CAGR compared to 2019 on the two-year basis and finally adjusted EPS was 1.55 euro cents per share representing 15% growth versus last year and a two-year CAGR of 12%. This performance, which included a fourth-quarter seasonal loss from Forte Nova's frozen food business of approximately 4 cents, is in line with the top end of our full-year guidance. After an exceptionally strong year for frozen food demand in 2020, we saw greater volatility in 2021 as Europe reopened and consumer demand began to normalize. In some cases, faster than in other parts of the world. However, while the European frozen food category did decline modestly during 2021, we believe our continuing solid performance is evidence of the longer-term shift of consumers eating occasions to their homes and the greater share of frozen food within that consumption. At the same time, We continue to invest in our brands as we optimize our NP strategy to maximize impact with our consumers and develop a growth engine in green cuisine. Specifically on green cuisine, we are pleased with our continued growth in the meat and alternative segments, which has seen that business grow by 31% during 2021. This growth is driven by product and technology innovations with the launch of chicken-less burgers and grills, as well as fish alternative fishless fingers. We continue to expect this segment to be a driver of dynamic growth in the years ahead. I am proud of how our supply chain has adapted to a radically different environment since 2019, navigating exceptional growth in demand in 2020 and ratcheting inflation pressure since the first half of 2021. Focusing on continuity of supply, we have right-fitted process to optimize our manufacturing and logistic network while undertaking several capital projects to ensure excellent service levels despite the volatile micro background. Even in this environment, our strong business model delivered free cash flow of 232 million euros for the year after higher capital investments in capacity expansion, and cost reduction projects. This was driven by our solid EBITDA performance and disciplined work in capital management. Within this number, we increased our capital investment by €20 million to €79 million, or 3% of revenue, as we invest in capacity expansion and cost reduction projects. We expect our underlying free cash flow to grow as we continue to expand our business and our conversion returns to its long-term 90% to 100% average. Our strong operation performance in 2021 was augmented with a number of capital allocation actions. We successfully completed two acquisitions during the year with a total announced purchase price of €725 million. Finder Switzerland, which we acquired at the start of the year for €110 million, completed our consolidation of the Finder brand in Europe. Our integration program is largely complete, and the business is performing well. In late September, we completed the acquisition of 14 of our frozen food business, which expanded our geographic footprint into several new markets in Central and Eastern Europe through the leading brands Ledo and Fricom. We have now owned the business for nearly five months, and we are pleased with what we have seen. The brands have leading market share positioning, and our teams are working hard to enhance them even further by leveraging the commercial and scale capabilities of Nomad Foods. In 2022, we plan to invest significantly in the business with targeted A&P increases and growth-focused capital investments, and we are confident of delivering our stated synergy target of 15 million by the end of 2024. For the Novas frozen food business, represents our fifth acquisition since the creation of Nomad Foods in 2015, and it shares many of the same characteristics as the deals that preceded it. Iconic brands with number one market share, strong consumer awareness, and attractive free cash flow. While we're excited to integrate Fortinova in the coming quarters, we have the appetite and capacity to continue the consolidation of frozen foods across Europe. Our M&A pipeline is active, and we look forward to updating you with progress when we have news to share. In August 2021, we announced a $500 million buyback program expiring in August 2024. To date, we have repurchased 4.2 million shares for a total value of €94 million, and we continue to regard opportunistic repurchases as a highly creative option to drive shareholder value. Turning to slide five, we're pleased to share a number of the sustainability milestones that we achieved in 2021. As Europe's leading frozen food company and a major purchaser of fish and agricultural produce, we are committed to playing our part in transforming the food system to protect natural resources and tackle climate change. Despite significant challenges across our supply chain in 2021, We have continued to raise the bar and I would like to provide you with a few examples. In 2021, we joined the United Nations Race to Zero and announced plans to significantly reduce our greenhouse gas emissions. We are also partnering with the World Wildlife Fund to further enhance our work on sustainable agriculture. During 2021, we achieved 100% renewable electricity in all of the factories within our base business, which reflects the medium-term direction of our energy strategy. As recognition of our progress on sustainability over a number of years, we were also delighted to be included in Dow Jones Sustainability Europe Index for the first time. We were ranked as one of the top four companies in Europe within the food product industry, with a full 100 score in health and well-being. Turning to slide six, I believe it is important to look at our results in 2021 in context of what we have achieved since the creation of this business in 2015. Following the series of early acquisitions which consolidated much of the Bird's Eye, Iglo and Findus operations across Europe, we have continued to grow our sales from €1.9 billion to €2.6 billion with a run rate into 2022 of €2.9 billion. including the 14 of our business. Our adjusted EBITDA has increased by over 50% to 487 million euros, and our adjusted EPS has increased by 85% at an average annual rate of 13% to a 2021 reported 1.55 euro per share. We will discuss our 2022 guidance later, but I'm confident that our business is well positioned to repeat this pattern of growth in this current year and over the medium and longer term, supported by our excellent team across Europe, our strong brand portfolio and consumer proposition, and our proven track record to deploy capital in the optimal way to drive value for our shareholders. With that, I will now hand the call over to Samy to review our financial results and guidance in more detail. Samy?
spk05: Thank you, Stéphane, and thank you all for your participation on the call today. Turning to slide seven, I will provide more detail on our key fourth quarter operating metrics. We reported revenues of €704 million in the fourth quarter with growth of 7% year-on-year, driven primarily by the acquisitions of Finder Switzerland and the 14 of our frozen food business. As a reminder, the Finder Switzerland business was acquired at the start of 2021 while Q4 represented our first quarter of ownership of the Forte Nova business. Beyond M&A, fourth quarter revenues also benefited two percentage points from favorable foreign exchange translation. These were offset by a 4.5% decline in organic revenues as we anniversaried elevated consumption resulting from lockdown across Europe in the prior year period. Full year revenues increased by 3.6% year on year. Within this result, Organic sales declined 2.1%, reflecting a low single-digit decline in the frozen food category, albeit still reflecting strong growth on a two-year basis versus the pre-pandemic levels. Against this backdrop, our market share for the year was down 20 basis points. However, the momentum in our business through half two and into 2022 has been positive, with solid market share growth since May 2021 as we recovered our positions following out-of-stocks and supply constraints during the first four months of the year. Gross margins were 26.5% during the fourth quarter, reflecting a 500 basis points decline compared to the prior year and in line with our expectations. This was composed of a 350 basis points decline in our base business, as inflationary pressures impacting the business during the quarter while mitigating pricing follows at the lag with price increases expected to be implemented through 2022. The remaining 150 basis points contraction was driven by the inclusion of the Finder Switzerland and Fortinova acquisitions whose gross margin are seasonally lower at this time of the year. The base business gross margin decline was driven by the anniversary of strong volumes in the prior year increased promotional activity, channel mix, and cost of goods inflation. On a full year basis, gross margin declined 140 basis points with M&A mix driving roughly half of the contraction. Moving down to the rest of the P&L, fourth quarter adjusted operating expenses declined 9% year over year and compares against a 15% increase in the prior year. This year's decline reflects a more normalized level of ANP spent as we anniversaried the incremental €10 million investment last year behind brand billing and consumer retention efforts. Post-quarter adjusted EBITDA of €113 million was down 5% versus the prior year, and adjusted EPS of €0.33 reflect a 13% decline as a result of the items discussed. Turning to cash flow on slide 8, We generated €232 million of adjusted free cash flow in 2021, representing a conversion rate of 84%. As we have communicated, this outcome was mainly impacted by working capital outflow as a result of our need to release inventory in 2021 and the anniversary of depressed working capital levels in the prior year. Furthermore, we increased capital investment by 20 million euro year-on-year to drive investments in capacity expansion and cost takeout. When evaluated on a two-year basis, 2021 and 2020, our free cash flow conversion was in excess of our 90 to 100% target. Turning to slide nine, our strong free cash flows underpin our long-term capital allocation strategy, and we have been consistently generating cash since our formation delivering 1.55 billion euro in the six years since 2016. Looking forward, as we continue to strengthen our brand portfolio and operational footprint, we fully expect to drive conversion at the 90 to 100% level over the medium term. During the year, we took the opportunity to significantly amend and extend our capital structure with the refinancing of almost 1 billion euro of debt, inclusive of our revolving credit facility an issuance of 400 million euros in new senior secured notes to partially fund the acquisition of the 14 of our frozen food business at the end of September. At the year end, our average debt maturity was 4.9 years, with a reduced year-on-year average debt cost of 2.3%. We remain committed to our three to four times net debt to EBITDA target, as we believe this is the optimal balance for our business to drive accretive growth over the long term. As we have previously highlighted, we are investing in our business with capital investment of 3% to 4% of sales in 2021 and 2022 as we target specific high-return projects. Finally, we will continue to deploy capital in an accurate way to drive growth where appropriate. As Stéphane mentioned earlier, we maintain an active M&A pipeline of targets within our core capabilities set to expand our footprint and maximize synergy potential. Balancing this, we regard buybacks as a sensible alternative to drive value for our shareholders, particularly given our consistent and on-track progression towards our long-term operational and financial objectives as outlined at our investor day in November 2020. With that, let's turn to our final slide, slide 10, to review our 2022 guidance, which we are initiating today and is based on our latest economic outlook, and foreign exchange rates as of February 17th, 2022. Starting with the top line, we expect to return to solid organic revenue growth in the low single-digit range for the year. This is a balanced outcome of phase price increases through the first and second halves of the year and are willing less to lose some volumes across our markets as we push for maximal cost recovery. We expect our newly acquired Adriatic's business to continue its recovery during 2022. Its incremental contribution to revenues during the first nine months of the year supports our reported revenue guidance of high single digits for the full year 2022. Adjusted EBITDA is expected to grow by high single digits due to the performance in our base business, cost controls, and the inclusion of the 14 of acquisition. All in, we expect adjusted EPS in a range of 1.71 and 1.75 euro per share, representing another year of double-digit growth at the midpoint. Like many businesses, we are currently experiencing high levels of inflation, which we plan to recover in a number of pricing waves throughout the year. As a result, we expect an improving gross margin profile over the course of 2022 as we recover cost input pressures in two phases to the first and second half of the year. Supplementing this, we expect the favorable mix from Forte Nova to provide a tailwind to margin driven by the performance in the high season of quarter two and three where high screen sales are strong. Based on this sequence of gross margin evolution, the seasonal loss from Forte Nova during Q1, and relatively difficult comparisons during the first three months of the year, we expect sequentially improving financial performance throughout the course of the year. For cash flow, we are confident we will deliver strong free cash flows in 2022. However, we expect a combination of higher capital investment and the implementation of the EU's unfair trading practice directive across the countries in which we operate to present some headwinds to our 90% to 100% medium-term conversion in 2022. Specifically, the adoption timeline of the EU directive is not consistent across all markets, and therefore, we are currently working to both evaluate and mitigate this in a sustainable way. We will give further detail on this at the end of the first quarter. That concludes our remarks.
spk07: I will now turn the session over to Q&A. Thank you. Operator, back to you. Thank you.
spk10: Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Andrew Lazar with Barclays.
spk09: Please proceed with your question. Great. Thanks very much. A couple questions here. Maybe to start with, with pricing, as you've discussed, with pricing not yet fully phased in, a tough top-line comp with last year, and the seasonality of Fort Inova that you talked about, it sounds like the shape of first quarter sort of profitability could still be under some pressure, sort of like what you saw in the fourth quarter. I know in the fourth quarter, EPS was down some 14% or so year over year. I'm just trying to get a sense of the magnitude of what we should think about in terms of the year over year change in earnings. And then, again, still in the first quarter, regarding organic sales, I know that it's still a pretty tough comp as you're still not fully lapped the lockdown from last year. Would you expect any sequential improvement in the year over year decline? inorganic sales from what you saw in 4Q to 1Q. And then I've just got to follow up.
spk00: Okay. Thank you very much, Andrew. So let me start with, obviously, the full year results and the quarterly results. Let me start with what we're coming up with in terms of guidance, which is double-digit APS growth and, obviously, revenue growth. So that's the full picture for the full year. But to your point, This year will be very different quarter by quarter. I think your points are right. First quarter, you know, we still had last year COVID. This year we have to lap this part. Interesting to see, by the way, that we are gaining market share in the meantime, which is something we've been doing over the last now 10 months. So that's an interesting piece. To your point, yes, there is always some sort of time lag between, let's say, COGS and price. That is the nature of the different countries we are. We have some countries that go, let's say, structurally, the negotiations are happening faster. Some are happening, obviously, at a different pace. And this year, we also will go through potentially several waves of price increase, which is going to make, you know, obviously, the quarter by quarter, let's say, comparison a bit more difficult. And the last piece to your point, absolutely right, Forte Nova, Q4, Q1, structurally these are the, let's say, the lowest, let's say, quarters, just for a simple reason. It's the very strong, you know, ice cream business by definition is obviously, says a bit less in the winter and early spring. But I can tell you, and when we see obviously Q2, Q3, we are very pleased. So I'm not going to obviously come up with the details of each quarter. But I think directionally, it is true that it's going to be a different story. Now, your point about the second question about the sales, yes, I think what you see exactly to your point about, you know, tough comes in the first quarter. We should see, obviously, this, you know, ramping up over time. But again, I think we're also planning to increase market share on a full year basis. So that's a bit, you know, what we can see this year, which is going to be, which is volatile by nature. It's a different perspective compared to what we had. But definitely after six years of growth, we have all the intents to grow again in 2022.
spk09: Okay, thanks. And then you talked about, we've heard a lot about grocery sales in general, and you talked about the frozen food category as well. has been running down kind of a low single digit, just given the extreme nature of the lockdown in many countries in Europe last year versus a reopened environment these days, and you still have some of that to go before you fully lap that. Have you seen, I guess, any changes more recently in the overall frozen food category performance at retail that lead you to believe that once you've kind of fully lapped some of those more significant lockdowns last year, that the category itself can sort of more quickly return to sort of modest growth that I would think would be sort of underpinning your expectation around low single-digit organic sales growth for the year?
spk00: I think you're absolutely right. When you take a bit of a distance, Andrew, what we can see is On the CAGR basis, two-year basis, we compare, obviously, let's say 2019 and 2021, two years. What we've seen is a CAGR of around 3.3%, which is definitely higher than what we had in the past with the category. Another way to look at it is also, and we have these four or five top markets, but I don't see any reason why it wouldn't apply for all the markets. the number of consumers going to frozen. And so we also have seen something like 2019, we had way close to a bit lower than 42 million people, you know, consumers, 41.7 to be precise. And in the meantime, we've seen the number of consumers growing by something like close to 5%, which is definitely very encouraging. And when you think about it, Well, I think people start, they've tasted again, you know, the frozen food. They've seen what, they've tasted, they like it. And they also, and I think it's only the beginning. I definitely believe that they see, for example, waste is a big component. I definitely think it's going to be, it's going to grow in the future. And nothing can be definitely, can beat frozen food from that standpoint. So I think that health and the sustainability are definitely strong tailwind for us, and it's going to help us in the future. So how things do materialize at what pace, we don't know yet, but definitely these are also some key themes we will emphasize in the future.
spk09: Thank you.
spk10: Our next question comes from the line of Jason English with Goldman Sachs. Please proceed with your question.
spk12: Hey, good morning, folks. Hi, Jason. Good afternoon. Good morning. I think it may be afternoon for you. Yeah, question on price. I know there's a lot of noise in the prior year base, so sometimes it's easier to look at things on a two-year stack basis. When we do that, you clearly have inflation escalating every quarter, but at the same time, you've got price slipping lower. I think this is the second consecutive quarter that your year-on-year price on a one- or two-year stack basis has eroded significantly. And it's now negative. What's driving that negativity? What's driving the erosion? And what does that foreshadow in terms of the pace and magnitude of price increase you're going to get as we roll into next year to offset some of this inflationary pressure?
spk00: Well, I think when you see Q4, I think you have to take into account the fact that in Q4 the year before, we were totally underpromoted for obvious reasons. And so that's the main reason why you have obviously that difference in Q4. I can only tell you that definitely, I mean, the intent is to price according to COGS. As we know, in Europe, it's going to be a bit staggered. But that's, you know, that's how we want to terminate, to exit the year and to prepare ourselves for the coming years. So, you know, quite frankly, last year, there was also very, very low COGS, as you know. And we've seen that. We've been, I think, extremely efficient from that standpoint. which then is materializing also in terms of price. I think we're also well equipped compared to private labor, which also helps us in terms of potential recession. But at the same time, right now, it's like the clearly, you know, according to Cox, obviously with pricing. It's just taking a bit more time here and there, as you know, but that's the way it's working country by country.
spk12: Well, on the topic of timing, Your comments on potentially multiple rounds was a bit surprising in a good way to me. I suppose I've always viewed continental Europe as a one-shot on goal per year type market where you can negotiate start of the year and that's it. You're kind of locked in and you've got to wait for the next year. So were those comments on multiple rounds really more referring to UK where you have more flexibility or are you seeing more flexibility in your continental European markets as well?
spk00: I would be very simple, Jason. The world is changing, and so we are changing, and the others will be changing. That's it.
spk07: That's good stuff. All right. Thanks a lot. I'll pass it on. Yeah.
spk10: Our next question comes from the line of Robert Moscow with Credit Suisse. Please receive your question.
spk11: Hi. Thanks. I just wanted to make sure I'm doing the math right. Fortanova in 2022, I'm getting at least an 8% contribution based on the original 270 million euro forecast. So if that's the case, your guidance for 2022 is high single digit. There's not a lot of wiggle room there for organic growth being positive. Am I doing the math right? Or is your definition of organic growth just very, very modest?
spk05: Well, on that, Robert, hi first. Overall, let's say what we've remained on the fact that our earnings, our EPS are going to be double-digit and effective from that standpoint, if you want, with the revenue pattern we have, we are clearly seeking for growth in 2022. Fortenova is clearly a vector that's contributing to that, no doubt. But as you know, I mean, we have a history of integrating a newly acquired business and driving out synergies as fast as we can, I mean, from that perspective. And we had provided, I mean, some perspective on the fact that Forte Nova was going to be a key contributor to the business. So overall, we don't provide, as you know, I mean, necessarily a breakdown across the business that we have acquired by category either. But overall, if you want, the commitment is that the combination of both the existing base business and Forte Nova is to drive, if you want, double EPS growth overall. And with Fulton being a key vector to that, but organic effectively continuing to be an area where we continue to invest and grow.
spk00: One more thing, Robert, I would put it that way. From the start, our model has always been based on the combination of organic growth M&A and M&A. And so that's exactly what's happening right now.
spk11: I'd like to To get a little more specific, if I could, is there anything that you find you've had to do with Fortinova to rationalize SKUs, maybe shrink the business to grow first on top line? Given the numbers that you're providing there, I think you need to give us a little more detail on what is happening with that business.
spk00: Well, the business is not changing. I would put it that way. I think... After five months and a half, the only thing we can see is we can only confirm what we've seen from the start, which is great business, great brands. I think it requires a bit of reinvestment, as we knew, especially in terms of freezers, for example, route to market. That's exactly what we're doing. We're increasing a bit also the ENP, and that's what we're doing at this stage. We also, by the way, very much in line with our model of mushroom battles. We are defining what the mushroom battles are. So we are focusing even further the investment behind the key categories, which unsurprisingly will be also, by the way, impulse, for example, in ice cream, take-home, and also some other one or two other frozen foods. But very much in line with the rest of the business. People like it, by the way. They like this focus. But there is nothing changed compared to what we said we would do, quite the contrary.
spk05: Robert, to complement the picture is that we are clearly gearing up very fast. I mean, the synergy agenda as well, overall beat on cost and on top line revenue as well. I mean, very consistent with what we have talked to on the Forte Nova announcement. But, effectively, I would refer back to Arne Bessie and Goodfellas, where we have a very good historical track record of integrating well and driving our synergies out. And, frankly, that's what makes, effectively, the Nova story very strong on the M&A side to complement the organic field side as well. And this one is just a bit bigger.
spk11: Yeah. Okay, so there's no change in terms of your sales expectations for Portanova, it sounds like. And just to follow up on Jason English's question about pricing waves, does that imply also you expect to take more than one price increase in a given country during the course of the year? Because in the U.S., it's more like, well, you raise the pricing as you need to, And then if you need more pricing, you take another pricing round. This one sounded, at least the way you're describing it, as you already know there's going to be more than one in a given country in a given year. Is that fair?
spk00: Well, to your point, you know, countries are a bit different in inflation level, are a bit different country by country. But I would put it that way. Yes, we all intend to raise price more than once. But at the end of the day, also partly in line with what the U.S. players are doing, which is on a need basis. So nothing really different. Otherwise, to your point, you know, we just, you know, this idea of having a timeline between cogs and price is not the kind of things we want. So that's very much in line with what the U.S. players are doing.
spk11: And last question. You said you're willing to feed some volume as you raise price, but you're also saying that you expect to gain market share. Can you help us reconcile those two things? Can you do both at the same time?
spk00: Yeah, we already had one, by the way. I think we were right. But, yes, I think it's important. Well, by definition, Robert, it's never easy to do both at the same time. So that's our job, obviously, to maneuver around this. But what's important in terms of shareholders' value is to make sure the cash flow, the future, are not going to be, let's say, damaged. And so what's important for us is to make sure that on the, let's say, long term, the gross margins are well protected. And if it means that we may have some bumps in the road, well, that's life. And we believe, as management and as shareholders, by the way, that it is the right thing to do on a long-term basis. Still, at the same time, yes, to your point, we're still intending to gain market share. We've been doing this for the last 10 months. And so that's what we want to achieve. We don't want to have fully... It depends on what you're defining as dislocation or whatever negotiation. So you have to carefully choose these things. But, yes, that's what's happening when inflation is a bit higher. That's normal.
spk07: Okay. Appreciate it. As a reminder, it's Star 1 to ask a question.
spk10: Our next question comes from the line of John Baumgartner with Mizuho. Please proceed with your question.
spk11: Good morning. Thanks for the question.
spk02: You know, first off, Stefan, there's been a lot of focus during the COVID era on volume, given the swings of consumption in-home and then out of the home. And you mentioned the growth in new consumers this morning. But I'd like to focus on product mix. To the extent that new households have come into the category since 2020 and frozen, you've been increasing your offerings of single-serve meals, entrees, even independent of green cuisine. I'm curious, what are you seeing in terms of demand for those premium products? And then given the changing consumption trends, Is it reasonable to think that mix can contribute a larger portion to organic revenue growth in the future on a sustainable basis relative to pre-COVID?
spk00: Well, to your point, let me start with green cuisine. Green cuisine is part of a new category. We believe that long-term it's going to be a fantastic category, and it's growing very nicely. We're gaining market share in this category, which is growing, which is nice, and to your point, We've seen a lot of these consumers tasting, testing our products, and what they've seen is definitely something which is of a great quality. So that's for green cuisine, which, by the way, generates a very nice gross margin. That's also important to notice. For the rest, I would put it that way, John. I think we remain true to our must-win battle concept, but which is very much in line with what we said. which is we're focusing on the categories, country by country, where we have the highest market share, the highest growth potential, and the highest growth margin. To your point, I think there is a remarkable, let's say, convergence with what you said, but from all standpoints, we have not changed our game from that standpoint. We're just have adapted it. And obviously, we're also capitalizing on e-commerce, which, as you know, is good for frozen food and is very good for brands like us, like always.
spk02: Okay. And then on the operational side, Sammy, Nomad launched this company-wide transformation optimization program in 2020. I think you've made some good changes to the supply chain since then as well, but can you highlight any specific accomplishments in that program during 2021, and what can we expect in terms of, you know, milestones or focus areas for 2022 in terms of optimization? Thank you.
spk05: Sure. John, on that one, I mean, just to set the record right, I would say the program was re-initiated in 2021, and it covers a number of areas, if you want, of transformation that are aimed at effectively maximizing revenue growth and accelerating them. and as well if you're optimizing our whole cost for trust. So at this very stage, we have completed, let's say, the task of putting together the appropriate team, starting to work effectively on the key building blocks that are going to drive us on both sides of revenue and cost optimization. You will hear more if you want in this year, but at this very stage, we are clearly completing the design phase as we speak in order for us to move the start of the implementation phase in the second half of the year. It's a big program, as you know, and we've been talking about it, and it's a multi-year program. So probably the benefits will start to probably kick off, if you want, more towards 2023 onwards, as opposed to 2022, where we will be effectively implementing the different parts of the program.
spk01: Okay.
spk10: Thanks for your time.
spk01: Thank you, John.
spk10: Our next question comes from the line of John Tanawang with CJS Securities. Please proceed with your question.
spk08: Hi, good morning. Thank you for taking my questions. Not to beat it to death, but I was just wondering if you could expand a little bit more on the pricing commentary and the multiple increases this year. Are you seeing parity now with the U.S. model, just in terms of the ability to raise prices closer to real time? Or is this still a way to go before you reach that point with maybe a big piece of your business that's still staying on the annual model?
spk05: Yeah, John, the reality there is the condition, the market condition are changing, okay? I think historically, Europe has been operating, particularly in our segment, and potentially in a lot of other staples businesses, under a fairly low single, I mean, level of inflation. And so usually, if you want, you got into a regular pattern, as you are very familiar with, which is inflation, the negotiation. promotion and plan alignment to get to an aligned view that would effectively preserve margin, contributing to optimize growth, and hopefully gain share. The context has dramatically changed now, as you know, and what we're seeing is inflation that is touching not us only, but everyone. So there is effectively, there are the conditions at this stage whereby we either go with a very high inflation and have to spend a year to correct or effectively try to scatter the pricing in a way that's probably more conducive to the reality of inflation. So we are starting the process. This is something that is not just only concerning us, but many other operators in the area of FMCG. And don't forget that within pricing, there's pricing per se, but there's a number of other components that are important to optimize, such as promotion, as you know, such as price pack architecture as well, such as trade terms. So the whole idea is to use all of the vectors. That's what has made us very strong in developing our revenue growth management strategy. But rather than doing one goal in the year, trying to spread it in a way that effectively softens down the implementation and enables the retailer to really be with us as we reflect the appropriate level of inflation into our pricing.
spk08: Okay, great. Thank you for that. And then second, I was wondering if you could talk about the phasing strategy. of promotional spending this year, and if there's any specific lumpiness that you're expecting, if there's any concentration maybe on green cuisine or a separate program. I think you mentioned that acquisitions will get some concentration this year. Just help us understand how that will run through the quarter as you expected today.
spk05: On the promotion, I think the one message you're hearing is, effectively, we want to grow the business. And, you know, this is a market where promotions are absolutely critical. And we had situations because of supply issues, particularly in the past, whereby our promotional ramp-up, if you will, has not been up to what we would like to see, simply because we didn't have the products. in the quantity we wanted. Now, effectively, we're getting to a point where a vast majority of the supply issues, if you want, are behind us. We are able to promote the business, and so, therefore, you would see probably a more steady pattern of our promotional activity across the year, and leveraging as well the seasonality of the product on both sides of the portfolio, which is effectively the base business on the one hand, and the Forte Nova business, which will go through a different promotional cycle. But the intent is to clearly drive competitiveness in promotion, be it if you want, on the aisle being on end of aisle displays, on features, in order for us to continue to attract consumers in our category in our business.
spk07: Okay, great. Thank you very much. As a reminder, it is star one to ask a question. We have a follow-up from the line of John .
spk10: Please proceed with your question.
spk08: Hey, thank you for the follow-up. I was wondering, within your EPS guidance for the year, are there any planned repurchases or other assumptions around capital deployment or allocation just included in that? And if so, what are they?
spk05: Yeah, as you know, I mean, we have aligned on a $500 million authorization. We have realized out of this $500 million, $1094 million in Q4. We continue to look at buyback as an opportunity for us to beef up our performance from an EPS standpoint, and we are always going to assess if you're on the buyback versus other form of capital allocation optimization there. So we won't provide you a number per se, but clearly the intent is to continue the program, and we have this authorization form to make good use of it. At the time, effectively, we judge is the right moment there, but we have the authorization in place. We've already started, and we intend to continue At this very stage, the objective is to contribute to driving WGTPS growth and drive the best return possible for the shareholders.
spk08: Okay, great. So just to be clear, there is some component of that that's included in the guidance?
spk05: I have not said that. I've just told you that we are looking at this in a very regular way in order for us to clearly contribute to the delivery of the goals. and looking at all possibilities within our capital allocation strategy.
spk08: Okay, fair enough. And then second follow-up, if I may. I was just wondering, just given your supply chain and demand base, is there any risk at all just from conflict in Eastern Europe? Are there any impacts that may be coming down the line just in terms of the ability to get supply or anything else that we may not be thinking of at this point?
spk00: Well, let me start by saying, you know, first, we have no, very, very, very little sales and no footprint at all in these countries. That's the first thing. In terms of supply chain, yes, definitely there are, you know, we have some of our commodities, you know, that are, like everybody else, energy is one component, some ingredients, fish as well. So we have some exposure. What we're hearing so far as anybody else is, let's say, what the, let's say the measures are more of a financial nature. Still, obviously, we have not waited to prepare ourselves. So I think we are, we've demonstrated that we can be, the adaptability is something that we are, we're very strong with. That can be the name of the game. And so definitely we already have prepared ourselves in terms of how can we do the dependency, can we move to other species if needed, that kind of things. So short-term, mid-term, we're preparing ourselves. We haven't waited.
spk08: Okay, great. Thank you again.
spk01: Okay.
spk10: Our next question is a follow-up from Andrew Lazar with Barclays. Please proceed with your question.
spk09: Hi, just a quick one. Sorry if I missed this. Did you mention what you were looking for in terms of total inflation in 22? And I'm just trying to get a read, therefore, on what sort of pricing, you know, would be needed to ultimately help, you know, manage profit dollars.
spk05: Thank you. We haven't provided a specific number, I mean, out there, but suffice to say that when you start to aggregate the different pieces, if you want, of our COGS, And you know the breakdown of our business between fish, veg, and the rest, and you definitely have some view of the different components. We're clearly looking at depending on the category between mid to high single-digit inflation that would require effectively associated pricing across the different ways you are going to execute.
spk07: Thank you.
spk10: Our next question comes from the line of Peter Sala with BTIG. Please proceed with your question.
spk03: Yeah, great. Thank you. Thanks for taking the question. I just wanted to come back to that previous question. Can you just elaborate a little bit on what you can do on supply chain to make sure you have the appropriate product? Can you buy stuff ahead of time just to make sure that you're not in a crunch period with all the Anzhongs in Europe at this point? Thank you.
spk00: Well, the first thing we're doing, for example, energy, for example, we fully hedged. That's one thing. That's, you know, and we obviously increased our hedge over time. Then in terms of, let's say, fish and all the rest of it, as I said, you know, it's not limited to Russia. You have all the other suppliers. You also can move, you know, to other species. They can be wild-caught. They can be farm fish as well. And by the way, Interesting also to see that, you know, for example, you know, we're very proud of for green cuisine fishless fingers. That's a great way to obviously to increase, you know, the exposure to the consumers. It's a great product, and I think it comes very handy at the right time. So a lot of options are available, some more short-term by nature, but also I think more in the long term we will need to – to flex our muscle and to demonstrate the adaptability.
spk05: The one point I think, just want to make sure it doesn't get lost in conversation there, is that we clearly have been on our toes, I mean, on this one. We have not waited for today to frankly start this thinking. This thinking has really started a while ago as we saw the situation deteriorating, and we had a task force that had been put in place in order for us to rethink broadly from supply availability to possibility to adapt the formula while maintaining the same level of quality requirement for our consumers and making sure that effectively we had a lot of preparedness scenarios in case we had some supply routes that would be shut down or whatever. So let's not forget that effectively we've got fish, but we've got as well veg where we have, let's say, stock that is being built for peace, for instance, once a year. We had a great season last year. which is clearly going to give us quite large quantities of peas, if you want, for the year. We have, I mean, spinach and other products. So we clearly have taken that very seriously, and we will try to leverage our competitive advantage on the fact that we don't have any position in Russia. We don't have any position in Ukraine. And we just need now to make sure that we get the product we need, which we are working on. I mean, at this stage, we have the right plans in place.
spk03: Great. So is it fair to assume that some of these mitigation strategies and maybe any additional costs associated with them are already contemplated to a certain degree in 2022 guidance?
spk00: Well, at this stage, I think the fact is it's too early to say because we don't know yet whether there will be some penalties or not. The fact of the matter, to your point, I think it's important to understand that. If at some stage, you know, we're coming with other species, for example, we also have a conversation with the customers. You know, that's a fact as well. That's a fact. It's something that everybody will understand.
spk05: The clear intent to your question is to remain committed on delivering WGCPS growth. So if there were some adverse elements there, you know us, you know our past record. I mean, frankly, we've delivered, if not over-delivered. And the intent is to continue to drive the same pattern as we look forward. And this year is no different from the others. We are committed to delivering the number that we have laid out.
spk07: Great. Thank you very much.
spk10: We have another follow-up from the line of John Baumgartner with Mizuho. Please proceed with your question. Yep. Thanks. Thanks for the follow-up.
spk02: Just a quick point of clarification. The $75 million of share repurchase in Q4, is that sort of a timing thing where it will show up on the P&L in Q1, or was that kind of offset on a net basis by, I guess, share issuance? I'm just curious because the share count didn't really move much in Q4 sequentially.
spk05: Yeah, the number has been executed, if you want, in Q4, definitely. I mean, what's important there is that the 75 is Q4. The 94 is the total that has been realized, if you want, overall. That's how it's been playing out.
spk07: Okay. Thank you. We have another follow-up from the line of Robert Moscow with Credit Suisse.
spk10: Please proceed with your question.
spk11: Thanks again. And just to be clear on the guidance, can you confirm that it contemplates like $100 per barrel oil, a significant increase in natural gas? And maybe you can give us a rough estimate on what percent those components are of your total cost basket.
spk05: Yeah, we can take offline the specific feedstock or underlying assumption on that, I think, Robert. But rest assured that our forecast is consistent with the macroeconomic condition, and that is already embedded into the guidance that we have. Our energy costs, if you want, represent a small percentage of our total COGS, as you know, even if we are in the industry where we heat and we freeze. but it's still small. The reality is that, effectively, we've seen a significant inflation increase, I mean, at that level, which we have hedged against so that we would be covered for the year. But I can take offline if you have a specific assumption relating to all of it or other elements that are of interest for you.
spk11: Okay, thanks. Did you say you expect mid-single-digit pricing in your modeling for 2022, or did I mishear that?
spk05: No, we didn't say that. No, we didn't say that. We did say that inflation, if you look at the different category of products we are facing, would range on a yearly basis, if you will, from middle to high single on inflation. And then depending on the timing and our commitment to recover inflation through pricing, we will adapt the pricing accordingly indeed. I mean, so that the total of the waves enable us to come out of the year to have recovered inflation.
spk07: Exiting the year. Got it. Got it. Thank you. There are no further questions.
spk10: I'd like to hand it back over to Stefan Deschmaker for closing remarks.
spk00: Thank you for your participation on today's call. Well, 2021 has been an eventful year. We are all learning to live with COVID while we see unprecedented inflation impacting global supply chains. Our organization has remained focused and shown incredible commitment to ensure the delivery of the business objective that we outlined at the start of the year. We are pleased to have achieved the fifth consecutive year of record financial performance and look forward to making it sixth in 2022. As a reminder, we will be attending the Cagney event later today, where we intend to talk through the business drivers in more granular detail,
spk07: We look forward to speaking to many of you there. Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation.
spk10: You may disconnect your lines at this time, and have a wonderful day.
Disclaimer