Nomad Foods Limited

Good morning, and welcome to the Nomad Food Second Quarter 2023 Earnings Call. Please note that this event is being recorded. I would like now to turn the conference over to Anthony Bucalo, Head of Investor Relations. Please go ahead.

Hello, and welcome to the Nomad Food Second Quarter 2023 Earnings Call. I am Anthony Bucalo, Head of Investor Relations, and I am joined on the call by Stéphane Deschirméker, 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 this slide in our investor presentation, which includes cautionary language. We will also discuss non-IFRS financial measures during the call today. These non-IFRS financial measures should not be considered a replacement for and should be read together with IFRS results. Users 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 represents adjusted figures for 2022 and 2023. All adjusted figures have been adjusted for exceptional items, acquisition-related costs, share-based payments, and related expenses, as well as non-cash FX gains or losses. Unless otherwise noted, comments from here on will refer to those adjusted numbers. With that, I will hand you over to Stéphane.

Thank you, Tony, and thank you for joining us on the call today. Nomad had another strong performance in the second quarter, as our sales momentum from the first quarter carried over into the second. This was our fifth consecutive quarter of accelerating organic sales. Our world-class teams delivered another great set of results, and we're well on our way to fully executing the commercial and supply chain strategies we announced at Cagney earlier this year. Today, we are raising our 2023 EPS guidance, boosted by our solid first half operation performance and second quarter share buyback. Nomad has navigated many challenges over the course of our history, and each time, we've come out as a stronger organization. We adjusted nimbly to Brexit in the COVID-19 pandemic, and last year the outbreak of the Ukraine war led to raw material supply challenges. We worked closely with our retailers to adjust our pricing to recover inflationary costs. This was necessary to ensure that we would have the right resources to continue investing in our business over the long term. We also successfully de-risked our supply chain, adapting our fish supply to include new species and geographies. while adding new sources of high-quality farm fish. Our new farm fish products have become a cornerstone of our innovation platform this year, with our exciting VASA launches fast becoming consumer favorites. We have more launches planned in the second half of the year across several new markets. Importantly, we extended our debt maturities to 2028 and 2029, further strengthening our balance sheet and providing us more long-term flexibility. For 2023, our strategic plans include leveraging supply chain cost savings to fuel growth, building our revenue growth management capabilities to maximize the value of our portfolio, and deploying new A&P investments to rebuild volume and market share momentum. We're pleased to share that we have accomplished our first two goals in the first half of this year. Our supply chain savings program is now in full swing helping fund top-line growth. Additionally, we've taken great strides in developing our revenue growth management capabilities, helping drive positive mix and manage costs. We are now leisure-focused on the execution of the third leg of our strategy, our new ANP investments program. Our ANP will increase significantly in Q3 versus the same time last year. Additionally, we will return to a more normalized annual rate of ANP this year, consistent with our history. This rollout will be aligned with the back-to-school schedule starting in mid-August and building momentum into September. This increased ANP investment will help drive our volumes and our market share in the back half of the year and beyond, and we expect improving results in the coming quarters. In addition to our A&P investments, we are also normalizing on compensation levels to ensure that we properly reward our great people. Nomad's fundamentals remain strong. Our cash flow performance is on target and our balance sheet is strengthening. Looking ahead to the rest of the year, as our new A&P investments reach the market, we expect to see improving market share and volume trends that should carry into 2024 and beyond. With that, I'd like to recap our second quarter key financial metrics, beginning with revenues. Quarterly revenues grew 6.9%, 8.6% organic, with high teens pricing upsetting high single-digit volumes and mixed declines. Gross margin was flat at 28.2%, held by our pricing initiatives and cost control programs. Adjusted EBITDA grew 4.5%, to €132 million, while adjusted EPS came in at €0.40 per share. Flag versus last year, due primarily to rising interest costs. At current dollar spot rates, our Q2 adjusted EPS was €0.44 per share. Our strong revenue performance in the quarter benefited from the double-digit price increase that swirled over from the second half of last year. As we observed in our Q1 reporting, some of our most important raw material prices are moderating, but we have yet to see real deflation. Our supply chain continues to deliver excellent results, and we are in a virtual cycle of customer service and cost management that should support our second half A&P push. Our service levels for the quarter rose to 97.8%, up 90 basis points. Maintaining this level of service has been crucial in defending our market share and high service levels will be key in our push to regain momentum in the second half of the year. Additionally, our procurement remains disciplined and we are covered for more than 90% of raw materials for the year. We've learned a great deal from the raw material inflation of the past two years and we have become much more flexible and strategic in how we acquire key inputs. We've left the percentage of our raw materials uncovered to take advantage of some favorable price trends developing in the market. We've just started the process of covering for 2024. We lost about 1% value share this quarter, consistent with our expectations and due primarily to our pricing strategy. We expect our new A&P strategy for the year to address this challenge. With increased media and more intensive promotional activity, we expect an improving volume and share performance for the rest of the year, setting us up for a return to volume growth in 2024. Finally, with increasing visibility on our business and our return-to-share repurchase, we are raising our 2023 Adjusted DPS Guidance to €1.54 to €1.57 per share from our previous €1.52 to €1.55 per share. This represents an Adjusted DPS range of $1.68 to $1.72 per share at current dollar spot rates. This guidance excludes the impact of any potential future capital allocation. The post-pandemic pressures and macro environment of the past two years have challenged us to become a leaner and more efficient company. I'm pleased to say that the execution of our 2023 plans to drive commercial and supply chain efficiency has been excellent so far this year. Additionally, I'm excited about the upcoming A&P investments. A great example of how we are successfully levering the power of our brands across markets is Goodfellas Pizza in continental Europe. Last year, we successfully rolled our distribution outside of Goodfellas' traditional strongholds of Ireland and the UK, specifically in France and Spain. We launched Goodfellas in France in October last year, with exclusive distribution in Carrefour until the end of 2022. That exclusivity is done, and we are now extending our distribution to other large food retailers in France and expect to reach half of total distribution points. We are leveraging promotion support for the range and, where possible, using dedicated promotion freezers managed by our sales force. Our Adriatic region is shaping up for another great summer, and our supply chain is meeting the challenge of high seasonal demand. We had a good summer last year due to hot weather and the end of COVID travel bans. We are also benefiting from new media and product innovation. This year, we are even better prepared to meet high seasonal demand. We build stocks through Q2, ensuring we have inventory to cover peaks this season. And that is now pulling through to consumers. Our service levels in the region remain in the high 90s. Building our revenue growth management capabilities is another core pillar of our 2023 strategy. We made significant progress in rolling out our RGM systems across the company in the first half. We are building dedicated RGM playbooks, resulting in more robust standardized reports and descriptive analytics. This is supporting our end-to-end RGM processes in each market, ensuring greater facts-based support for strategic decisions, further enhancing portfolio value. We are boosting ANP spend by more than 20% year-on-year, with the bulk of that coming in the back half. We expect ANP in aggregate to reach roughly 4% of sales by year-end, a significantly higher level when compared to 2022, which was closer to 3% of sales. This combination of promotion and advertising is being helped by a milder inflation environment, putting less pressure on margins. As our new media reaches the consumer and our price gaps with competition narrow, we are already seeing great green shoots of improvement in both volume and market share, especially in many of our merchant battles. In the Q2 Nielsen period in markets where we compete, we saw frozen food volumes at flat. Finally, backed by a good cash flow performance, we repurchased shares for the first time since the first quarter of last year. We bought nearly 53 million euros worth of shares this quarter, roughly 3.3 million shares in total. We have been and will remain opportunistic on shares repurchase. We continue to be optimistic about our second half outlook and beyond. First, the frozen food category across our markets is in good shape, outperforming the overall food category. Frozen food sales are up double digits year to date, and category volumes have turned positive in more than half of our markets, improving sequentially in most others. Second, we kept up our strong consumers messaging the second quarter, emphasizing our broad-based superiority through revamped advertising campaigns across the majority of our mushroom battles. This includes UK peas, Italy fish, and Belgian spinach. In the Adriatic region, our summer sales have been boosted by our innovation with the new Pistachio King brand and your new campaign for matcha ice cream. Green cuisine remains a great source of innovation in plant protein, and we won two awards this quarter in Germany for new products in media. With initiatives like these in place, we are seeing our value share trend flatten or improve in half of our markets. We expect this to pick up in the back half. With that, I will now hand the call over to Sami to review our financial results and guidance in more detail. Sami?