Nomad Foods Limited

Greetings and welcome to the Nomad Foods fourth quarter 2023 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Amit Sharma, Head of Investor Relations for Nomad Foods. Thank you. You may begin.

Hello, and welcome to Nomad Foods' fourth quarter 2023 earnings call. I'm Amit Sharma, head of investor relations, and I'm joined on the call today by Sifan Dishmaker, our CEO, and Sami Zoukoud, our CFO. Right now, everyone should have access to the earnings release for the period ending December 31, 2023. That was published at approximately 6.45 a.m. Eastern time. The press release and investor presentation are available on Nomad Foods website at www.nomadfoods.com. This call is being webcast and the replay will be available on the company's website. This conference call will 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 risk and uncertainties, which are discussed in our press release, our filings with SEC, and in our investor relation 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 and should be read together with IFRS results. Users can find the IFRS to non-IFRS reconciliation 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 compensation, and related expenses, as well as non-cash FX gains or losses. Unlike otherwise noted, comments from here on will refer to these adjusted numbers. With that, I will hand you over to Stefan.

Thank you, Amit. I would like to begin by offering a few highlights from our solid fourth quarter and full-year results. I would then offer a few comments on our accelerated growth outlook and the health of the frozen categories, before handing it over to Samy for detailed review of our quarterly financial results and our initial 2024 guidance. Nomad Food delivered another quarter of solid top and bottom line performance. Fourth quarter organic sales increased by 1.9%, our sixth consecutive quarter of positive organic growth, as our volume trends improved sequentially in each month of the quarter. Quarterly and full-year gross margins improved substantially, and we continue to generate strong cash flows, enabling us to initiate a quarterly cash dividend. I'm proud of our team to enable us to continue our uninterrupted track records of top-tier financial performance and finish 2023 with record-high annual sales and a bid down. I'm even more excited about our building momentum as the key drivers of our long-term profitable growth begin to accelerate. As the impact of challenging macros recedes and we return to our typical operating cadence, we expect even stronger top and bottom line growth in 2024 and for many years to come. Specifically, we expect 2024 organic sales to increase by 3% to 4%, including positive volume and share. Adjusted EBITDA is expected to increase by 4% to 6% to €556 to €567 million. Adjusted EPS is expected to be in the range of €1.75 to €1.80, which implies 9% to 12% growth. We expect another year of strong cash flow generation, with cash flow converging in the 90% to 95% range. With that, let me provide a few highlights on our fourth quarter performance. Fourth quarter net sales increased by 1.4%, as organic growth of 1.9% was modestly offset by unfavorable forex. Our volume mix declines improved subsequently from the last quarter and moderated to the lowest levels in the third quarter of 2022. Fourth quarter gross margins improved by more than 160 basis points due to disciplined pricing, optimized promotions, and continued focus on productivity. Our full year gross margin also came in better than expected, even as we absorbed substantial COGS inflation, enabling us to continue to increase A&P investments behind our brands. Adjusted EBITDA of €117 million and adjusted EPS of €0.32 per share both came in ahead of expectations. We generated nearly €174 million of free cash flow during the quarter, and 300 million euros for the full year, one of our highest, with cash conversion ratio of 109% well above our targeted range. Our long track record of consistently strong cash flows is at the foundation of our effective capital allocation to enhance shareholder value. To that effect, we initiated a quarterly cash dividend of 15 cents per share a notable milestone for Nomad Foods and a testament to the quality and resilience of our business and our confidence in our ability to generate significant cash flows and a sustainable long-term growth. At the retail sales level, as reported by Nielsen IQ, our value sales for the 12-week period ending December 31st increased by nearly 2%. including sequentially improving volume and market share trends. Our recent year-over-year volume growth and share trends have already turned positive in many key markets, giving us greater confidence in delivering positive volume growth in 2024. The frozen food segment in Europe remains healthy. Underlying consumption in our core categories and key markets continue to grow with improving volume trends over the last few periods. Even with the unprecedented level of inflation-driven pricing in the last two years, frozen food remains highly relevant for most consumers. Frozen food enjoys high household penetration in OKI markets in the mid to high 80% range. And even more importantly, household penetration has remained largely stable even with the extraordinary pricing in the last two years. And it's not that difficult to see why. Frozen food categories align perfectly with a number of secular consumer trends, including convenience, taste, nutrition, sustainability, and remain highly affordable. For instance, using our value packs and promotion, family of five, can enjoy a meal of fish fingers, waffles, and peas for around $10 in many markets, highlighting the tremendous value proposition for products offering a key consideration for consumers in the current environment. We are positioning ourselves to capture a greater share of this growth by increasing our focus in investments behind our biggest and most profitable opportunities. Our total advertising and promotion spending increased by nearly 30% in the fourth quarter, and a disproportionately large share of these investments were made against our top 20 mushroom battles. These high-priority opportunities account for nearly half of our retail sales and even a higher, bigger share of our gross profits. Our recent strengths in many of these opportunities are very encouraging, and gives me greater confidence in our revised growth plans as we look to 2024. The significant ramp up in our fourth quarter A&P investment will continue with 2024. Specifically, we launched our master brand campaign to drive greater affinity to our brands in the first quarter, to build an emotional connection to our brands and to remind consumers of the most relevant and loved aspects of their relationship with our iconic brands. Our messaging will also focus on highlighting the stronger health claims of our brands to emphasize the naturalness and goodness of our products, given the increasing debate around obesity and ultra-processed foods. Along with driving the call, higher A&P will also help reignite our innovation engine. Historically, New products have accounted for nearly 5% of our annual sales, and it fell below that level in 2023. We committed to regaining our innovation momentum and have an exciting pipeline of new products to be launched through the rest of the year. I mentioned two of these innovations last week. Iglo-branded Mexican decoated fish fillet in Germany and King's branded multi-layered premium ice cream for the home occasion in the Adriatic. We have planned a full spectrum of marketing support and retail activation behind both these innovations, along with our other new products in our pipeline. As expected, the majority of these, the difficult but necessary pricing discussions with a few of our retail partners, which I mentioned in our last call, were resolved successfully. Retail environment remains dynamic, but we have successfully completed pricing conversations in majority of our markets, and we remain on track to complete the rest over the next few months. At the same time, we are optimizing our promotion spending and reallocating resources where we see the largest potential impact. As I mentioned in my comments at the CAGNI conference last week, we are investing in our growth capabilities, in our data, in our analytics to position us for accelerated growth in 2024 and beyond. These investments are meaningfully upgrading our retail execution. We have better insights and a wider, more comprehensive revenue growth management toolkit to maximize our profitable volumes. These strategies are working, and I strongly believe that they position us to capture a greater share of the frozen food growth in our markets. Our increasing investments to drive accelerated growth is underpinned by our productive agenda, particularly across our supply chain. The resilience and nimbleness of our supply chain during a period of unprecedented volatility is unmatched across the frozen food aisle. But I'm even more proud of the fact that we are accomplishing it while increasing our focus on driver-grade efficiencies across our network. We are optimizing our manufacturing and logistics network, reducing complexities, and establishing strategic relationships with key suppliers to reduce supply risk and generate procurement savings. Our supply chain delivered strong cost savings and higher cash flows in 2023, even as our service levels improved to over 98%. We expect a similar trajectory in 2024. While on the topic of cash flow, as I mentioned earlier, we generated 300 million euros of free cash in 2023, our second highest annual cash flow ever. Strong cash flows are the foundation of our value-enhancing capital allocation strategies. We bought back more than 6% of our shares, outstanding in 2023, initiated a quarterly cash dividend, and adopted a new $500 million share repurchase program, highlighting the strength and flexibility of our balance sheet as we continue to execute a balanced capital deployment strategy intended to maximize shareholder returns. In conclusion, we delivered record high sales and a bid down in 2023, with improving margins and strong cash flows. Our quarterly volume trends improve sequentially, positioning us to deliver positive volume and share growth in 2024. We are increasing our growth investments to unlock the full potential of our attractive frozen categories and iconic brands, positioning us to deliver sustained, attractive growth in 2024 and for many more years to come. I'm highly confident of delivering of revised long-term targets of 3% to 4% organic revenue growth, 5% to 7% adjusted EBITDA growth, 7% to 9% adjusted EPS growth, and 90% to 95% cash conversion, which I believe will deliver superior returns for our shareholders. With that, let me hand the call over to Sammy to review our fourth quarter results. and our 2024 guidance in greater detail.