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spk00: In Q1, we generated 25 million euros of adjusted free cash flow for a conversion ratio of 32%, but to 62% in Q1 2022. Q1 was adversely impacted by the phasing of inventory, receivables and payables in certain markets during the quarter. The adverse phasing of receivables and payables is temporary and should reverse in Q2. We remain on target for our 2023 cash flow guidance, and our options for accretive capital allocation remain wide open. CapEx of €21 million was flat versus last year. We continue to support strategic investments in the business. Changes in cash tax increased €1 million to €10 million, while cash interest was down €2 million to €25 million. As part of our refinancing in November 2022, we will be facing higher cash interest payments on a portion of our debt. As a result, we saw a cash benefit in Q1 before realizing the full impact of higher interest charges in Q2. Last year, our cash generation was negatively impacted by a working capital build to mitigate the possibility of supply shortages in the middle of the year. We are also impacted by the implementation of unfair trade practice directive, UTPD, in the EU. This year, with normalised inventory level and UTPD in the base, we expect cash flow conversion in line with our historical average. With that, let's turn to slide eight to review our 2023 guidance, which we initiated in our 2022 earnings report in February and are basing today. This guidance is based on foreign exchange rates as of May 3, 2023. We are updating the original guidance we delivered in our 2022 year-end earnings report. First, we expect organic revenue growth to be in the mid-single digit range for 2023. We expect our pricing initiative to more than offset volume declines. We expect cash flow to be in line with our historical performance With working capital and UTPD in the base, we expect our cash conversion ratio in the range of 90% to 95%, in line with historical averages. We are raising the bottom end of our original 2023 guidance. We now expect adjusted EPS in the range of €1.52 to €1.55 per share, or €1.67 to €1.71 at current USD spot rates. This replaces our original guidance of €1.50 to €1.55 and excludes any impact of capital allocation. I will now turn the session over to Q&A.
spk10: Operator, back to you.
spk09: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question will come from Jason English with Goldman Sachs. You may now go ahead.
spk04: Hey, good morning, folks. Or perhaps it's good afternoon when you're out. A couple of quick questions. You mentioned, I think, Stefan, this is in your comments, you plan to recoup the inflation incurred in 2022 and 2023 collectively by year-end. My question is, how? Are you expecting to have more list price increases, or I believe you've tapered some trade on top of list price increases. Is the anticipation that you'll be able to pull back on some of that trade to get more effectively net price realization by year-end?
spk01: Well, it's a bit of a combination of everything, to your point. At first, the first piece, Jason, we are well, you know, we are well embarked in terms of recovering the price increase. Don't forget, you know, that it's something which is obviously started last year. So we have obviously the positive impact of 2022. We already had some negotiations, positive negotiations early this year. So what's left is much lower. And don't forget, at the same time, you know, the inflation, input cost inflation has... somewhat decelerated in the meantime, which is probably, you know, deceleration is probably higher or better than anticipated, which helps us as well. So that's the piece, that's the macro piece where we stand. So, yes, we're still left with some here and there, you know, some negotiation, but it's nothing comparable to what we had last year. And then with that, obviously, you're going to the consumers, consumers, it's about obviously promo and all these things and so it's much more about revenue growth management and it has really become you know a big and it's becoming more and more a big muscle for us right now and also for the coming months and years. So that's where we stand but maybe I can, you can compliment Samy.
spk00: Yeah, Stéphane, I think you said most of it. The one thing, Jason, I would insist on is actually the pressure for the coming quarters is actually much lower than what we have planned, given what has been executed so far and what we are seeing from an inflation trend. Stéphane was alluded to the point of, let's say, revenue growth management strategy, which we are really now leveraging full speed across the market to really make sure that we execute some of these interventions, if you want, in the right market and in the right category to remain competitive versus the rest of the market as well. So clearly, we are on trend, if not a bit better on that.
spk04: Okay. And you also commented in prepared remarks that private label gaps have not yet narrowed. Is that like they haven't yet narrowed all the way back? Are they narrowing? But just are you seeing progress on that front, I guess, is the core of my question. And with the cost pressure... perhaps moderating a bit, does that influence your expectations of how far you expect private label to go in closing those gaps?
spk01: Well, it's a complicated question, Jason, because obviously it's not, you know, it's other people. So we can't, you know, second guess what they're going to do. The only thing we can say is we're all subject to the same, let's say, constraints. The market is the market. You know, the fish is the fish. The vegetables are the vegetables. So our decision was, and it still is, by the way, to make sure as brand players, as brand leaders, we want to obviously maintain our gross margin so as to be able to reinvest. That's the very essence of a brand leader. And that's what we're going to do. What other people might decide to do with their margin is something else. We haven't seen, you know, overall yet, you know, a very significant narrowing down of the difference. It may come, may not come, but probably you should ask them at some stage.
spk04: Indeed. If I get a hold of them, I will. Thank you very much. I'll pass it on.
spk10: Thank you, Jason.
spk09: Our next question will come from John Baumgardner with Misubo Securities. You may now go ahead.
spk07: Good morning. Thanks for the question.
spk09: Hi, John. Hi, John.
spk07: Maybe first off, I want to walk through the four Innova assets as we're heading into the peak season there, especially as you're lapping a tough comp on the revenue side. Are there any fundamental or structural improvements or enhancements you can highlight that you've implemented that are poised to benefit operations this year on the revenue side?
spk01: Well, to your point, last year was a really great year. And believe me, we have all the intent to have another great year this year. with or without the weather. I think there are things that we have very much in line with the business model, by the way. We've improved. So first, you know, you have a huge, let's say, number of freezers in some way outdated and not expected, you know, we're improving all these freezers. I think it's, memory is right. You have around 120,000 freezers across the whole region, which is a great route to market, as you can imagine. And some, you know, had to be somewhere outdated and as expected, we're changing them, which is great and is going to help us and with the retailers and with the consumers. That's the first piece. The second piece is we're also improving, let's say, the quality of the factories. That was also part of the plan. And the third piece, which is something we have learned since last year, is you probably need to... you know, to be ready on time, more ready on time in terms of inventory of finished goods. Because it's another game vis-a-vis frozen food. So you have to make sure that you're going to be ready, let's say Q1 or even Q4, Q1, Q2 to deliver. It's quite different from frozen food. You just can't rely on Q2 and Q3 to deliver your ice cream. Last year, we had some out-of-stocks. because we hadn't fully, you know, grasped at that piece, and obviously we're learning, and so that's the third piece of improvement that we are coming up with. On top of that, you know, the team is, well, the team is great, you know, with the Adriatics. They're doing a fantastic job. They've come up with a new taste, considered as among the best, you know, ice cream in the world, and it's, yeah, it's going to come. By the way, we also... have opened a new avenue in terms of export, let's say to Austria, where you have a very sizable community of croats there, especially in Vienna. And as you know, we have a very strong distribution in this country. And so if you go to Vienna, I would invite you to go to some of the stores there, for example, Spa. It's not advertising here. And then you will see some of the Lido products. And, you know, we're very confident it's going to do well. So, yes, very pleased with what we have, qualitatively and quantitatively.
spk07: Okay. Thanks for that, Stéphane. And then just, you know, a follow-up. I wanted to ask about the A&P spending. Your categories, you know, I wouldn't say are impulse-oriented. And I'm curious how long you think it might take to convert your investments into increased takeaway. Are there specific programs you're targeting that you're more optimistic can deliver a reasonably fast payback, whether it's trade or messaging? Just any perspectives on programming would be helpful. Thank you.
spk00: Yeah, thank you. We have communicated, John, on our clear intent to step up our investment in NP. As you have seen, I mean, over the past years, we have taken it down really by trying to optimize your whole portfolio. But it's about time. that we reinvest behind the assets that we have. And I think that there are a number of things that we are really doing now, which is refueling effectively the level of spending behind our must-win battles. We do know that when we invest there, the payback is quite fast and it's strong because the brands are quite strong. But nevertheless, given the fact that the trend has been a bit down over the past year, it's just going to take a bit more time than usual. But clearly that builds up if you have sustainable growth as we move forward. Investing effectively around equity, I mean, is very important. The Captain is a perfect example of that. We are clearly refueling, effectively, our investment, I mean, there. And what pays back a bit faster sometimes is, frankly, more innovation-driven, more effectively targeted to, let's say, coordination between in-store and equity investment when we try to have a bit of a holistic NP intervention there, where we see faster returns, usually within the 9 to 12 months-ish. Whereas if you're the classic advertising investment, it's on a longer payout there. But we're clearly trying to balance the need for reinvesting behind must-win battles that are absolutely critical to bring them back on par with what is making growth strong and profitable. And on top, trying to leverage any commercial option related to market dynamics. For instance, let's say clearly cost-of-living intervention or innovation intervention or all other limits. When we have BASA as an example coming up, of course, we'll advertise that and that has a clear return, I mean, much faster than others.
spk01: And you will see steps of investment starting really end of Q2 and then really Q3 and Q4.
spk10: Thank you very much. Thank you.
spk09: Our next question will come from Peter Saleh with BTIG. You may now go ahead.
spk02: Great. Thanks for taking the question. I just wanted to ask on the pricing plans. I know you had a mid-teens pricing in the first quarter here. How should we think about your pricing for the balance of the year? Do you anticipate at this point in time taking any additional price, given you haven't really seen any deflation, maybe some just moderation in commodities? Just try to understand how you're thinking about the pricing lever for the balance of this year.
spk00: Yeah, as we said earlier, the pricing, if you want, that is going to come is actually much less than what we had originally planned for, for the reason that, effectively, our first tranche that has happened in GFM has gone really well and has passed through. And on top of that, if you want, we see, let's say, a lower pressure on inflation that is putting, if you want, the coming burden on the need to recover inflation through pricing lower than planned. So, clearly, at this very stage, is definitely within a range of pricing intervention that will be much more moderate over the quarters to come. As we see forward, we will be very specific because this inflation hits if you're a different category in different markets at a different level. And we try to make sure that effectively we go wherever it makes sense with the intent as well of taking advantage from an inflation standpoint on the fact that we are hedged at about 80%, as we indicated, and we have 20% unhedged. And on this unhedged part, we intend to clearly leverage any positive opportunity in the market in case we have access to input costs at a lower price, which will reduce the pressure for pricing in the next quarter. So, clearly, on par is not ahead, and at this stage, much more manageable as we move forward.
spk10: Great. Thank you very much. Our next question will come from Cody Ross with UBS.
spk09: You may now go ahead.
spk06: Good morning. This is Simon Nagin filling in for Cody Ross.
spk09: Okay.
spk06: Hi, Simon. Hey, there. You haven't repurchased shares since first quarter of last year as you focused on securing inventory. When do you anticipate share repurchases being a bigger part of the capital allocation process again?
spk00: Well, we definitely have considered share repurchase as part of our capital allocation strategy, as we have mentioned many times. The focus over the first quarter was clearly to stabilize the business as we are clearly getting into, let's say, inventory and receivable at the time. Management at the time were executing pricing and securing the supply. As now we're getting out of this, let's say, clear transition quarter now, we clearly have the next quarter to look at different options, I mean, appealing to us, whether this is effective share repurchase or other capital allocation strategy. But share repurchase remains very high on our agenda. And we've been opportunistic on that. And as market goes, we will effectively execute our strategy as we move forward on that.
spk10: Great. Thanks so much. Our next question will come from Steve Powers with Deutsche Bank.
spk09: You may now go ahead.
spk03: Hey, good afternoon. I wanted to ask about your manufacturing savings that you had, your target to step up in manufacturing savings entering 23. And I just want to get a status check on progress there, how much you've already started to receive and that we've seen in the first quarter results versus how much is yet to build over the balance of the year.
spk00: Yeah, definitely the program is in place. We had different axes, if you want, of development there. One was the pure manufacturing efficiency in the different sites that we had, clearly leveraging all the opportunities to implement our lean program activities in order to clearly reduce the conversion cost overall, taking into account the volume dynamic as much as effectively the utility and the efficiency dynamic or productivity dynamic that we had. The program is well in place and delivering good saving in line with the plan. And it is a well-spread plan over the quarter. So what you see in quarter one is going to spread over the coming quarter. There was another range of intervention that we had made, which was more geared on product formulation and if your ability to meet the market needs in a very effective way. And within that plan, we have made some of the interventions that are gradually being implemented. And you can understand that whenever we touch product, we touch at different parameters, such as packaging, or go to market, and pricing, and others. And those are being deployed as we go. But very clearly, the investment and the focus is in there. We have a great team there that is implementing that. The inflation, as we said, I mean, is clearly going on the right trend. I mean, at this stage, and we have take an opportunity of the market opening to have access to input costs at a lower price. And so the saving flow is coming as planned and is reflected effectively on our overall performance as we move forward in line with our expectations.
spk01: On top of that, I would also add, you know, logistics. Yeah, absolutely. Where we're making a lot of progress, savings, and still a lot of opportunities ahead of us. Okay.
spk03: Okay. That's helpful. Maybe if I could, the other, you'd also communicated at Cagney, you know, relatively sizable step up in innovation spending. And I guess similar question, you know, how much of that have we already seen? How much of that is yet to come? And just any early feedback on sort of the return expectations on that investment.
spk01: Well, the first one, as you may know, Steve, is about Bazaar or Spangasus in continental Europe. It came out of necessity last year with obviously the outbreak of the Ukraine war. But we've really moved from necessity to an opportunity for us. And so since something like end of Q3 last year, we really started to develop, you know, that part of the new business, which is farm fish, which is great, by the way. The product is great. And now we have developed and launched Bazaar in four countries, Netherlands, UK, Germany, and France. And it's doing well. We're making a lot of progress. We're planning to have another three countries by the end of the year. And that's innovation because it doesn't replace, you know, new products. It doesn't replace, you know, a card or Pollock. It's really something new. And that's a big innovation. The second piece is more about affordability, and we also have some very interesting, let's say, new innovations, especially in fish. So these are the first two pieces where we have invested. More to come, but let's say, and one thing interesting as well, you may say it's innovation or not innovation, but the pizza in France. We were not present in France. We think we have... the right reason to be present with pizza in France. We have the right distribution. Goodfellas is a great product. And let's face it, you know, for reasons, you know, that are, let's say, linked to competition, there was a big white space. There is a big white space available there. And we've seen, you know, we had a conversation with the retailers, and they're very open. And then we have now, you can see Goodfellas pizza with Cafu, for example, in France, and with other retailers. So that is also innovation. I love this innovation because they don't cost anything, by the way, because it's available. It's there, just not present in that specific country, which is great. The other piece is, especially during this cost of living crisis, is renovation. I think the big piece for us is to make sure our products, our brand products, are going to come up with superiority in terms of packaging, in terms of pace, and all these things. And that's, you know, short-term and mid-term, that's absolutely critical for us. So these are the big pieces where we have invested. More to come, obviously, in the coming months for 2024 and onwards. But these are the big themes we think are very much adapted to the current situation.
spk10: Very helpful. Thank you very much. Our next question will come from Rob Dickerson with Jefferies.
spk09: You may now go ahead.
spk05: Great. Thanks so much. Apologies if you already went through all this and hopped on late. So just a kind of question around, you know, trade spending promo kind of vis-a-vis the gross margin. Clearly in the first quarter, gross margin was great. I think it originally came out of Q4, you had said, there would be a sequential progression in gross margin, but now gross margin is still flat, so it doesn't seem like there's probably sequential progression really still occurring because a lot of it was front-end loaded. Do you feel like kind of where you see the marketplace today and kind of what you had budgeted, I guess, in promo kind of is steady, or do you think you might need a little extra room kind of as you get through the year to maybe lean in to make sure you're getting the velocities. And again, just asking kind of, you know, as it pertains to the kind of the delta and the gross margin flow. That's it. Thanks so much.
spk00: Yes, Harold. Yes, it's very much in line, frankly, with what we're expecting. I mean, the one thing, though, that we have looked at more thoroughly in the context that we've been facing with a good quarter behind us is effectively whether looking at our revenue growth management whether there could be some surgical intervention to be made on some key country category combination where we are clearly running behind from a share momentum standpoint and looking at opportunities to do so. Don't expect, if you want, moving forward a massive change there, but much more targeted intervention to really, let's say, maintain a price gap that is, let's say, conducive of growth overall. or potentially opportunity to reignite growth in some of the categories where clearly we've taken pricing and where clearly we may have to be more competitive for a while. This continues to remain the category that is heavily promotion-driven. We clearly have a very strong promotional plan, I mean, across the rest of the vast majority of the market. But wherever we have opportunities to be more surgical to ignite a stronger growth and regain a share momentum, definitely we look at that. But as I said, it's going to be more on a country by country, category by category basis.
spk05: Okay, great. And maybe just a quick clarification, follow-up. When you talk about the strategic pricing, you know, kind of dependent on end market positioning, is that kind of a way from Fort Nova? I just think of, you know, kind of handheld ice cream, you know, in Eastern Europe at the beach, like people aren't really buying on promo. So it's really, you're kind of talking more about those core categories, really, more frozen fish, frozen veg, maybe. Is that right?
spk00: Yeah, we're looking at that. I mean, unfortunately, we have actually started the work as well to see if there were opportunities there. More on the growth side, profitable growth side than anything. But I would say the majority of the emphasis is on the more core categories, the non-ice cream category.
spk10: All right, great. Thanks, Jamie.
spk09: Again, if you have a question, please press star then 1. Our next question will come from John Tanwan Tang with CJS Securities. You may now go ahead.
spk08: Hi, good morning. Thank you for taking my questions, and congrats on the strong results. Samy, I didn't know if you addressed this previously, but did you mention how you're expecting gross margins to trend through the quarters? Just on a cadence perspective, is there anything different from your normal seasonality, or are there some puts and takes that we should be thinking about?
spk00: No, we maintain the guidance, which is about flat margin for the year. The bump we had in Q1 was expected, and it's going to then effectively deliver, I mean, it's going to lead us to deliver in line with the expectation of that.
spk08: Okay, great. And can you give us an update by region what you're seeing, if there's been any surprise in any of your end markets? I know there's been protests in France that have been fairly disruptive to other industries. Just tell me if there's anything that's surprising, either good or bad, in the countries that you're in.
spk00: No, I would say nothing, if you want, of a surprise. I mean, pretty much in line with the expectation, if you want, on that one. We had actually great customer service and performance, I mean, overall. And the performance of the quarter has been consistent with our expectation, as it shows, if you want, on the gradual share development that we see, but nothing of significance.
spk01: They're different, let's say, region by region, by definition, but they haven't come up with any surprise region by region. Yeah.
spk08: Okay, great. And then last one for me. Can you give us an update on green cuisine, number one, how that's doing, and number two, just how your sustainability initiatives, which you've had a lot of and talked about a lot of, how have those been received by your retail partners and your consumers, your end consumers? Is that something that even comes up on the radar in times of stress budgets, and is that something you're pushing? Just help us understand where your positioning is on that.
spk01: Let me start with two questions, actually, John, if I understand you well. The first one is about green cuisine. Actually, in terms of green cuisine, you know, last year, you know, to your point, I mean, we had the flat sales in the category declining by 9%. So, to your point, I think we, I mean, we had a share gain of 2%, which is, we are the number two player in frozen food plan 14. This year, you know, so we're growing faster than the others. This year, We're up slightly in terms of market share, with a country like Germany performing extremely well, growing at 10%, and share up 10%. Italy is up as well. So overall, we're very pleased. This being said, when you take the category, it's a very interesting category, and we really believe that the category has a long-term role to play. But I think what we also have seen is, is after a lot of excitement, people started to reconsider. Habits need to change, which is not unusual, by the way. I think a lot of categories have been through that kind of trend. And I think it's up to us, leaders, to raise the game and to come up with the right products, the right combinations, the right price. And so do I believe that there is a long-term future? As I said, yes. But definitely, I think the consumer's remind us, all of us, by the way, much more than others, or for others, by the way, that, you know, it's never take people for granted, which is great. That's exactly what we need to do. In terms of sustainability, well, you know, we've just published our sustainability report, I think it is today, and I would really invite you, John, to go through, you know, at the very least, the headlines. Well, it is really strong. When you see the numbers we have in terms of, let's say, for example, sustainable fish, in terms of sustainable agriculture, in terms of healthy foods, in terms of SBTI, quite frankly, it's something we can, well, I'm not saying that lightly, by the way, because I'm more of the, you know, easily dissatisfied. But it's really impressive. So back to your point about how does it sell then, well, I can tell you the retailers, starting with the retailers, they also have their programs. And they need people like us to come with programs that are very much in line, because they have also their carbon footprint programs and all the rest of it. And they need, obviously, to have a consolidated view. So with people like us, you know, I can tell you, I will not mention any names. But I can tell you, we have a very, very solid conversation, very fruitful conversation with some of these retailers, and I think it's only starting. As far as the consumers, as far as the consumers, as we're talking about the consumers, I think we can do more. We can do better. I think, again, when I see the numbers, the numbers we have, I think that we need to do ourselves a better job. That's my... where we can do a better job at coming with these numbers, because these are facts. You know that we perform extremely well with, for example, Wall Street in terms of where we stand in terms of sustainability, but more to come. Quite frankly, I think we are too modest, too modest from that standpoint, given the facts we are coming up with. But it will change, I can tell you. and to the satisfaction of the retailers, the consumers, and ultimately to our satisfaction.
spk08: Got it. Thank you. Thank you very much, Stephane.
spk10: It was very helpful. Please read the report. It's really interesting.
spk09: This concludes our question and answer session. I would like to turn the conference back over to Stephane Deschmaker for any closing remarks.
spk01: Thank you, operator, and thank you for your participation on today's call. We got off to a solid start for the year, and we remain on track to deliver our promises. We believe frozen food remains the best value for consumers across food, and we remain proud category leaders. We are focused and committed to delivering our ambitious financial objectives for 2023 and beyond. Thank you all. Operating back to you.
spk09: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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