Nomad Foods Limited

Good day, ladies and gentlemen, and welcome to Nomad Foods' first quarter 2024 earnings conference call. At this time, all participants are in listen-only mode. The question and answer session will follow the formal presentation. To give everyone the opportunity to participate, please limit yourself to one question and one follow-up. If you should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I would now like to turn the conference over to Amit Sharma. Please go ahead, sir.

Hello, and welcome to Nomad Food's first quarter 2024 earnings call. I'm Amit Sharma, head of investor relations, and I'm joined on the call by Stefan Dishmaker, our CEO, and Sami Zakoud, our CFO. By now, everyone should have access to the earnings release for the period ended March 31. 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 a 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 the SEC, and 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 the IFRS results. Investors can find the IFRS to non-IFRS reconciliation within our earnings release and in the appendices at the end of our slide presentation available on our website. Please note that certain financial information within this presentation represent adjusted figures for 2023 and 2024. All adjusted figures have been adjusted primarily for share-based payment expenses and related employee payroll taxes. Non-operating M&A related costs, acquisition purchase price adjustments, exceptional items, and foreign currency translation charges and gains. Unless otherwise noted, comments from here on will refer to those adjusted numbers. With that, I will hand the call over to Stéphane.

Thank you, Amit. We'd like to begin by offering a few highlights from our first quarter as we made a solid start to the year. I will then offer a few comments on our accelerated growth outlook as we deploy our growth flywheel before handing it over to Sami for a detailed review of our quarterly financial results and to the 234 outlook. Nomad Food delivered another quarter of solid top and bottom line performance. First quarter net sales increased by 1.1%, including organic sales growth of 0.3%. our seventh consecutive quarter of positive organic sales growth. Our volume trends improved substantially, both sequentially and on a year-over-year basis, which is very encouraging given our clear focus on returning back to positive volume growth in 2024. Our accelerating volume trends during the quarter validate the difficult choices we made over the past 18 to 24 months to protect the long-term health and growth potential for brands. We made targeted investments during the quarter to further boost this recovery. These investments are being fueled by favorable cost and productivity agenda, which we believe will position us to deliver higher margins and strong profit growth through the rest of the year. We paid our first quarterly cash dividend during the quarter and remain opportunistic buyers of our stock supported by our strong cash generation. I'm excited about building momentum as our initiatives to drive sustained, profitable growth begin to take hold and our volume recovery begins to accelerate. As a result, we are reiterating our 2024 guidance, including net sales growth of 3% to 4%, with positive volume and share growth, adjusted EBITDA growth of 4% to 6%, and adjusted EPS in the range of 1.75 to 1.80 euro, which implies 9% to 12% growth. With that, let me provide a few highlights on our first quarter performance. First quarter net sales increased by 1.1%, as favorable Forex complemented organic growth of 0.3%. Quarterly volume declines moderated significantly from last quarter, accompanied with strong products and customer mix as we begin to deploy our revenue growth management toolkit across key markets and categories. As expected, contribution from pricing moderated as we lapped strong year-ago pricing actions. First quarter gross margins declined by 200 basis points to 26.9%. As the expected one-time margin headwinds, due to balance sheet inventory evaluation more than offset higher underlying margins. Samy will provide more details about the revaluation impact, but I'm pleased with the improving trajectory of our underlying margins, which is being driven by a clear focus on lower cost, productivity, favorable mix, and optimized promotions. Given our expectations of a more favorable cost environment ahead, we remain confident in delivering high gross margins for the full year, enabling us to continue to invest in our brands. Adjusted EBITDA of €122 million and adjusted EPS of €0.37 per share both declined from the year-ago quarter. We generated nearly €49 million of adjusted free cash flow in the first quarter, a significant improvement from €25 million in the year-ago quarter. As the retail sales level, as reported by Nielsen IQ, of volume and share trajectory continues to show significant improvement and even turned positive in many of our key markets during the quarter, including UK and Austria. This recovery is being driven by the full activation of our renewed and upgraded flywheel, bring consumers back to the frozen isle and to drive greater engagement with our brands. Winning with consumers, winning with our brands, and winning with customers are the key pillars of our flywheel, and we made the intended investment in the first quarter to achieve it. Our A&P spending increased by more than 20% as we expanded our master brand campaign to additional markets to drive greater engagement with consumers and to remind them the most relevant and loved aspects of their relationship with our iconic brands. We timed our first quarter pricing and promotion activities to maximize benefits from favorable seasonality and to align it with greater consumer interest in the frozen ice. At the same time, our ongoing investments in data, analytics, capabilities, and people helped us execute better ourselves. Enabled by our ongoing business transformation project, Our centers of excellence are delivering deeper, data-driven insights to our local markets to optimize their promotions spent, reallocating resources to the largest potential opportunities, and winning additional merchandising events in stores. Our comprehensive revenue growth management toolkit is enabling us to fine-tune our promotional frequencies and depths at a much more granular level. We are customizing our strategy at country and category level to support our consumers and deliver attractive price points to bring them back to the frozen isle and to our brands. As I discussed at a recent Cagney presentation, a key driver of our anticipated volume recovery is our increasing focus on our best and biggest opportunities. The top 25 of these mushroom battles accounted for nearly two-thirds of our sales and an even greater share of our gross profits in the quarter. As planned, these top mushroom battles received a disproportionately large share of our growth investments, and as expected, delivered sales growth and gross margin fine excess of our overall business, including positive volume growth in 15 of the top 25 mushroom battles.