Nomad Foods Limited

Ladies and gentlemen, good morning and welcome to the Nomad Foods Q3 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Anthony Bucalo. Please go ahead.

Hello, and welcome to the Nomad Foods Third Quarter 2022 Earnings Call. I am Anthony Bucalo, Head of Investor Relations, and I am joined on the call by Stephan DeShearmaker, our CEO, and Sami Zikoud, our CFO. 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 discussed in our press release, our filings with the SEC, and the 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 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 2021 and 2022. 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. Unless otherwise noted, all comments from here on will refer to those adjusted numbers. With that, I will hand you over to Stéphane.

Thank you, Tony. Good afternoon, everyone, and thank you for joining us on the call today. We are pleased to review our results for the quarter. Nomad had a very strong performance in the third quarter. We were boosted by solid commercial and supply chain execution, as well as price increases across the business. I'm especially pleased with the performance of the great people across Nomad for their leadership, focus, hard work, and creativity. In Q3, our reported revenues grew 27%. Our organic sales increased 7.2%, driven by double-digit net price increases, which offset much of the cost inflation we experienced in the first half. There is still work to do, and we remain committed to our journey of growth acceleration and value creation. The Adriatic region posted another very good performance, boosted by strong sales of our ice cream brands. Our leading plant protein brand, Green Cuisine, is winning in the market and had another good quarter. Green Cuisine is growing sales high single digits and reached its highest ever four-week market share at 16.8%. This was a 140 basis point improvement versus the same period last year across Europe. This further fortifies our number two position in the plant protein category. Overall, Nomad lost a small degree of value share. However, we believe this is temporary in nature. We will regain share over the medium and long term, driven by consistent innovation in our core portfolio. We know that our consumers are under pressure, and we are preparing new affordability initiatives to help keep them with the Nomad brands in partnership with our retailers. Within the portfolio, we are developing value innovations to offer tasty, healthy, and sustainable meal solutions at lower price points. We believe we are well positioned within our supply chain structure to drive growth through effective cost management, winning innovation, and strong service execution. In the first nine months of the year, we improved our service level by 90 basis points, rising to 96.7%. Additionally, we have fully covered our cost of goods sold for 2022, and we have made great progress in securing supply at competitive cost for 2023. We're also on the path to extending our debt maturity profile until 2028 and 2029. through a refinancing of our $960 million principal term loan B due 2024, with approximately $830 million term loan B due 2029. Looking ahead to the fourth quarter, we are still working to adjust our prices to recover our input cost inflation. This will enable us to maintain a proper level of investment in our business, as well as the frozen food category on hold. We've made great progress in this area, and as we are heading to 2023, we expect our business performance to continue improving. We expect full-year net pricing to offset volume and mix declines, leading to low single-digit organic sales growth for the year. As we further offset input cost increases, we expect gross margins to improve over time. Nomad is navigating a challenging consumer environment, which includes high energy prices, rising inflation, and political disruption. However, we are executing well through this period of uncertainty. We believe the steps we've taken should allow us to enter 2023 in a position of strength. With that, I'd like to recap our third quarter key financial metrics, beginning with reported revenues of €760 million, which increased 27% year-on-year. Increase in reported sales was driven by the inclusion of our recent acquisition and good growth in our organic revenues. Organic revenue grew by 7.2%, driven primarily by double-digit net price increase in the quarter. Q3 represented a sequential quarter of improvement and our best performance since the fourth quarter of 2020. Our volumes and mix were down 3.4%, driven by elasticity impacts but offset by positive mix. We delivered an adjusted gross margin of 29.1%, 110 basis points higher year-on-year, reflecting the benefits of new pricing and the inclusion of the Adriatic region, which has peak margins during the summer. Adjusted EBITDA of €153 million represents a 35% increase compared to last year, as higher input costs were more than offset by higher pricing, energy and a phasing. And finally, adjusted EPS was 52 euro cents per share, up nearly 50% year on year. Turning to slide four, our revenues benefited from a return to organic growth in our base business. We have successfully landed our pricing initiative throughout the year, realizing a 10.6% net price increase in the third quarter. This price increase offset a 3.4% decline in volume and mix. In October, we maintain our sales momentum with mid-single-digit sales growth. We remain on track for a low single-digit organic sales performance for the full year. In the third quarter, we substantially narrowed the gap between input cost and price, which had opened in the second quarter. there is always a time lag between linear COX increases and those staggered price increases to the retailers. We have nearly caught up to that lag. Additionally, our dialogue remains active with retailers regarding further changes to our pricing, allowing more adjustments over time as we rebuild our gross margins. We have good visibility on cost as we're effectively covered for the balance of 2022, and we are on schedule for covering costs for 2023. In a dynamic pricing environment, our overall value share was down slightly for our entire business and in our mushroom battles in Q3. Year-to-date, our overall share is down only slightly and is flat in our mushroom battles. We believe this market share loss is short-term in nature. We're making significant progress in extending our debt maturity profile. This will be through a refinancing of our $960 million term loan B due mid-2024 with approximately $830 million term loan B due 2029. With this extension, our entire debt portfolio will be fully covered until 2028 and 2029 at an attractive interest cost. The deal has been priced and will close this Thursday. This will enable us to focus our attention on accelerating growth and winning with the consumer in a highly volatile environment. With the successful execution of our pricing strategy and coverage on cost for this year, we are affirming or adjusted EPS guidance range for 2022 at 1.65 to 1.71 euro. This represents a high single-digit growth versus a year ago. Longer term, We are pleased with our business trajectory and remain confident that we will deliver our 2025 adjusted EPS target of 2.30 euros. Turning to slide 5, Nomad has successfully adapted to difficult challenges many times throughout our history, and this year is no different. The war in Ukraine has required us to react quickly to change the market. we can report progress on three focus areas which have all strengthened our business. First, we fully executed our planned price increase in the quarter, and we see this as a testament to the strength of our brands and strategies. We believe we will be in good shape to enter 2023 with the margins and cash flow needed to invest in our brands. Second, our fish diversification strategy has moved into a new stage. We have good news on our growing investment in high-quality found fish. We are happy to announce that we secured supply in October with major producers, all of whom are ASE compliant. Currently, 98% of our fish comes from sustainable fishing or responsible farming. We believe we are on track for that to be 100% by 2025. This new source not only diversifies our species and geographical sources, but is also an additional driver of our sustainability goals. We expect to see the initial benefits of new supply early in 2023, with the potential for rapid growth in capacity expected over the next three years. This investment in farmed fish also provides us with an additional platform for innovation. We have plans in place for new high-quality fish products in the coming years across many key nomad markets. Finally, we are proud to report that our successful integration with the Adriatic region is ahead of schedule and ahead of our expectations. We had a strong summer selling season as tourists returned to the seaside, helped by good weather during most of the summer. We saw a strong recovery in the on-trade channel and gained market share as well. The region is ahead of our plan on sales and EBITDA year-to-date, and we expect this region will be an important source of growth in the future. As a note, the Fortinova transaction was finalized at the end of September 2021 and is now fully integrated into organic numbers going forward. And with that, I will turn the remarks over to Sami. Sami?