Nomad Foods Limited

All participants are in a listen-only mode. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Jason English, Head of Investor Relations. Thank you, you may now begin.

Good morning everyone, and thank you for joining us today. I hope everyone has had the chance to read our press release and listen to our pre-recorded management remarks, both of which are available on our website. In addition, we have posted a transcript of the pre-recorded remarks and the accompanying presentation. At the conclusion of today's live Q&A session, we'll also post an audio replay of this call. Please note that during today's Q&A session, we may make 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 findings for 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 place for, and should be read together with IFRS results. Users can find the IFRS to non-IFRS reconciliations within our earnings release and 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. All adjusted figures have been adjusted primarily for, when applicable, share-based payment expenses and related employer payroll taxes, exceptional items, and foreign currency cancellation charges or gains. Unless otherwise noted, comments from here will refer to those adjusted numbers. Joining me today are Nomad Foods CEO, Stephane Deschmacher, and CFO, Ruben Beldieu. Now, let's get started with our first question. Operator.

We will now begin the question and answer session. To ask a question, you may press star then one 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'll pause momentarily to assemble our roster. The first question comes from Andrew Lazer with Barclays. Please go ahead.

Great, thanks so much, and thanks again to you guys for putting out the published prepared remarks. That's actually very helpful to us and sort of getting through the results pretty quickly. Maybe, Stephane, just as a starting point, I guess, what gives you the confidence and sort of the visibility that you finally called the full year guidance low enough, given the pattern more recently of missing and guiding lower over the past year?

Thanks, Andrew. It's a great question, and obviously, it's a very important question for us. Let me stand back for just a second. I've been with the company for 10 years since we started, and quite frankly, to your point, I don't think we've been accustomed to this. So it's really something that we need to take into consideration, the guidance. The second point is, at the same time, over the last 10 years, with all of these systems we've been through, I think we've been very good at learning from all these events. So let me first start with what I think is self-inflicted, and I'm really taking this on me. I think we were too optimistic with our ERP implementation. That's the first piece, and the second level, we also had an excessive venture in Q1, that quite frankly, we did a poor job at anticipating it. And quite frankly, I'm taking these two points with me. I think the lessons, though, is, in terms of our ERP, we're slowing down the program, just to make sure that we're taking the right level in terms of risk, digestion of all the things we're doing, which is absolutely fundamental, and I'm very pleased with what the team is doing at this stage. And in terms of excess inventory and all these things between selling and sell-out, quite frankly, what I've seen is the team is doing a much, much, much better job at reading the visibility between both, and let's say the dynamics between both, especially during these volatile times. So that's the first piece, which is really, quite frankly, I would call self-inflicted. The second piece is, especially in Q2, is the weather. Well, for information, June in Western Europe is one of the hottest June in record in the region. Some differences, obviously, let's say Nordics was a bit milder, but you take countries like France, like UK, like Belgium, while the numbers, especially between, let's say mid-June to mid-July, well, you have numbers around minus five, minus six, minus seven percent for the market as such, where quite frankly, we would have expected to be in the region of 1.5 to 2%. At the same time, we've been able to regain market to gain market share, especially in volume, which is good, and despite the fact that all categories are especially fish and vegetable are under trading, especially during the hot weather, but that's not obviously, that's not enough. So for us also, the learning here is, okay, what can we do to make sure that we have a better summer assortment? Because basically, we don't know whether it's going to be a pattern for the future, but we need to be ready to hedge our bets for the future for 2026 and beyond. And we have the teams are preparing things in terms of potatoes, in terms of natural fish and other things that we mentioned later. So I have to make sure that basically, we have either, you know, obviously an additional opportunity for the future, which we always did, and obviously also how to hedge our bets versus what can happen in the future. We don't know that piece. Now obviously with all these things and with all this volatility, yes, we have decided to take a wider range, to take into account what potential risk, obviously, may mostly around additional continuing heat wave. We haven't seen it yet. Let's say, let's make it when it's interesting to see that first part of July was very hot. And we've seen the numbers immediately in terms of sellout. And the second half was better, was better from our standpoint, obviously, which means milder weather. We've seen immediately the correlation between the two. But this is why we're taking this range. Obviously, there is no additional heat wave or something similar. Obviously, we're not going to touch the low end, but that's why we took a wider range. And I think it was not an easy decision. We understand that. But at the same time, we definitely believe it's the right decision.

Great, okay, thanks for that. And then maybe as a follow-up, the midpoint of organic growth guidance for the year would point to about 50 basis points of organic sales growth in the second half. If 3Q ultimately returns to some growth, as I think you hope it does, I know that would suggest, I guess, not a whole lot of improvement between 3Q and 4Q. Am I thinking about that the right way? Or I would think maybe some of the sell-out demand kind of builds sequentially as you go through the year. But I'm just curious on your thoughts, Bec. Thank you so much.

Yeah, I think Andrew, let me take that. So you're right. Let me also, for the sake of the benefit for the whole group, so our range between the zero minus two assumes an H2 between a plus two and a half and a minus one and a half, and indeed the midpoint is plus a half. You're right that normally speaking, we should see growth in 4Q, but also to be clear on what Stefan just said, and I know the optics of the weather, but just some data points. We've seen the market in quarter two in volume minus one. With Easter, we'd expect that to be plus one, one and a half, including Easter. We don't have all the sell-out data yet for all markets. For the markets for which we have it, from mid-June to mid-July, we've seen market at minus five and a half. And we've seen that to Stefan's point immediately reflected also in our sales, especially in Northwest Europe and big countries parts like UK. So that will have a track on quarter three. So we're not committing to growth in quarter three, depends on what Stefan just said, what are we seeing through the course of the quarter. Yes, and if there's growth in quarter three, your mathematics are right, and the midpoint assumes a bit more of a prudent assumption for quarter four. We're also very conscious that we've now lowered the guidance two times, and

we will avoid that happening again. Thanks so much.

Our next question comes from Steve Powers with Deutsche Bank, please go ahead.

Great, thank you very much. Riva, just to confirm on your three-queue commentary, you are fully understand the marketplace trends into the quarter and the dynamics, but you are lapping the ERP supply disruption of a year ago. I think that was about a two and a half point negative to last year's sales versus consumption. Just wanna clarify that and make sure that that comparison still factors into your outlook.

Yeah, that's correct. So we indeed have the ERP lag, which was last year in August and September, and that was two and a half percent. So also the numbers I just quoted are two and a half on the top end of the range and a minus one and a half on the bottom end of the range, actually underlying are a bit worse. So you roughly talk about the top end around one and a half and the bottom end around minus two and a half. So we'll have that favorable comparison, although again, I have to repeat that what we've seen in July so far was a weak start, especially in the UK.

Okay, understood, thank you. The broader question, maybe you could talk a little bit more about the inflationary pressures you've seen build of late and how those are likely to flow through 25 and then carry over into 26. And I know it's very early, but just any kind of round numbers in terms of the magnitude of pricing that you would be considering in 26 at this point, assuming the trends hold, thank you.

Yeah, thank you for asking this question. It's an important question. So we started the year, and we said it goes after quarter long remarks, with an inflation assumption of around two and a half percent. We saw that going into a four percent last quarter, and this quarter we're looking at a full year inflation of around four and a half percent. The additional increase we've seen from four to four and a half is again, and I know the optics, but if you look at the weather to Stefan's point, it has been the hottest summer in Western Europe since ever. The last one was 2003. It's not only the temperature, it's also the dry and the lack of rain. So the UK had seen 70% more sunshine, which means we've had the worst crop for some one piece. And that is the main reason why our inflation assumption has moved from four to four and a half percent. That's also the main reason why you also see the gross margin drop in quarter two. Now, going forward, and as we said last time, we will take some price where we are able to do that. So for example, we'll take some price in the UK, but if you take a step back, we have yearly negotiation cycles, which are mainly in quarter one. And we don't see this as a reason to go off cycle. So a lot of the recovery of the inflation we have seen coming through in this year, and before we talked about chicken, and now we see some of the crops will have to be taken into pricing for next year. Now then your question is, what then about next year? Let's be clear, our commitment now is, and our focus now is making sure we deliver our commitments for 2025. And we set the right foundation and fundaments for 2026. Yes, we will take pricing to recover in 2026, but there are also some other puts and takes, like for example, some bonus releases, which we had this year, which will be a bit of a head in next year.

Okay, thank you very much. I'll pass it on, appreciate it.

Our next question comes from Scott Marks with Jefferies. Please go ahead.

Hey, good morning. Thanks so much for taking our questions. First thing I wanted to ask about, you made some comments in the prepared remarks, just about some of the SG&A savings, targeted overhead expense reductions. Maybe just wondering if you can share any more details around some of those initiatives and how we should be thinking about those for the remainder of this year and then into next year.

Yeah, thank you. So we have indeed seen, and you've seen it also in the presentation, reduction SG&A. Let's also be clear, that is driven predominantly by overheads. So not by A&P, but by overheads. Yes, there is an impact on some bonus releases, and I don't wanna go into detail of how much it was, but there's a substantial saving also because of our focus on cost competitiveness and our focus on bringing indirects down after inflation. So compensating for inflation. And it also links to the previous question in terms of pricing and recovery. Yes, we will be taking pricing, but we're also conscious that we need to be cost competitive and don't wanna have over pricing tax versus our competition. So some of the savings we have been driving, like reductions in some of our support functions, some synergies we saw in some growth market organization will

continue into 206 as well.

Understood, thanks for that. Next question I wanted to ask about is just around some of the innovations. There was some commentary around, in 2024, I think you said about 10% of sales were from innovation and renovation. This year that's expected to nearly double. Just wondering if you can kind of share some thoughts around the innovation pipeline and kind of how you see that shaping up for the rest of this year as well as next year. Thanks.

To your point, let me split it in between the two pieces. This year obviously is going to be higher than that in combination of renovation and innovation. And both are equally important for us because renovation is absolutely fundamental in terms of making sure that we keep, we increase our security -a-vis our main competitors, i.e. private level. And that's a key piece and we have a very, very aggressive program in terms of making sure that, obviously in terms, you know, that we would be superior or equal, but definitely superior in terms of our Muslim battles. That's the first piece and that program is well engaged. More to come obviously in the coming quarters. In terms of innovation, yes, the number, the legal value is increasing. We're in the region of now 6.5%, which is a big difference compared to where we were in 2022, 2023, which had gone down big time, especially during that time where price was the only thing that mattered for the retailers and the consumers. And so in terms of innovation, well, you've seen that there are series of things that we're doing in terms of chicken, for example, in terms of fish. I mean, a lot of innovation in terms of snacking, which is a new area for us. So we were very much focused on in terms of family me time. I think there is a great opportunity for us in frozen food to go with snacking. And we're really starting this, you know, especially in Italy with fish strips and other things like that, the same way. So a lot of things, you know, quite frankly, at this stage protein balls is great as well. It's something that we're going to launch now in the next few weeks in the UK, in Netherlands, in Belgium. The countries are very excited by that. And then it's successful, and we think it's going to be successful in the coming years, because obviously also something we're doing well and better and better is the move from one country to another through a list and launch. If successful in one country, obviously we can go to other countries. So that program, you know, I mean, took a bit of time. I think it was a bit of, we were so focused on the Mustang battle that basically where the rigor was not probably great in terms of innovation. It has changed, it is changing. We have the Mustang battle, we have the growth, the growth platforms in the new countries, and that is making a difference.

We'll pass it on, thanks so much.

Our next question comes from John Baumgartner with Nizuho, please go ahead.

Good morning, thanks for the question.

First off, Ruben, just, you know, coming back to the comments on productivity, I'm wondering if you can discuss some of the newer initiatives. I think that this supply chain optimization program and the facility closure in Sweden, can you elaborate a bit on this plan? What else is involved in the program and how should we think about the structural benefits?

Yes, thank you for asking this question. So what we need now is a closure in a small factory in the Nordics. We've discussed, you know, some -on-ones and another discussion for our overall network, and we actually see a program on a couple of axes. One is procurement, where I think we've already made great steps, but there's more to come, which we can also drive in the future years. And the second bit is on network, where we have to look at our total complexity of our network, the number of sites, as well within a site, what we can do to optimize there. I've not been personally here in the role, and as you've also heard in our feedback, we merged together with Stefan, together with our Chief Supply Chain Officer, we're embarking on a program to drive more cost competitors out of those programs, and we're keen to share more with you in the second half of the year.

Okay, and then coming back to innovation, can you walk through the future foods lab you've established? What categories are you focusing on there? Do you plan on taking ownership interests in any of the partners? Is it just more of a commercialization relationship? Just any more detail that would be helpful, thank you.

Yeah, it's very interesting. It's obviously early in the game for us, but we're learning how to partner with, actually I would put it that way. We were very much focused on ourselves for many years, and I think we have evolved, and we're learning how to deal with you guys as a start-up. We have some more to come in the food service probably in the coming month. We have a first example. I will spare you the details because it feels very high in the financial, but definitely it's a kind of thing we've learned a lot with the start-up, and we're going to start with them in some countries where food service is present for us. You know that food service is big for us in South-East Europe, in Switzerland, in the Nordics, and also in Spain and Portugal. So we're going to start with that, with more to come in others. But again, I don't want to die to come with a name right now because it's still confidential, but definitely it's going to come with the coming month. And more to come up with others. We're also developing, by the way, pilot plans, which also is going to help us and our partners to move faster in terms of innovation. I think the speed at which innovation is taking place is absolutely critical. And with this kind of steps, we also can move faster and then more, we see, we'll be closer to the market. But there will be other things. It's, you know, this portal is very interesting. We received a lot of attention from a lot of people, and now we're in the process, obviously, of selecting the guys with whom we want to work. But it's very

promising. Thank you.

Again, if you have a question, please press star then one. Our next question comes from John Tan Wen Tang with CJS Securities. Please go ahead.

Hi, good morning. Thank you for taking my questions. I was wondering if you could talk about the portfolio and maybe this is a longer term question, just how you might be dealing with hotter weather on average, structurally versus, you know, the true outliers like you saw on Q2. You know, we've seen more heat waves in recent years, and if that's something you need to prepare for, you know, either in the portfolio, I don't know if it's moving ice cream out of the Adriatic or doing something, you know, with your crops and supply chain to position for that. Just help us understand the long term positioning and how you might be dealing with that, if at all. Thank you.

You know, John, I think it's not only, you know, how to move up to the challenge we expect, we experience this year. It's also the fact that year in, year out, even with quote unquote the normal weather, structurally frozen food is lower in the summer than in the spring or winter, obviously, or later in the year. And then I think this combination of lower, plus obviously the heat wave is something that we want to tackle, I mean, more seriously. The difference compared to many years ago when I think the teams at the time tried something, we have, I mean, the opportunity is so much wider that, you know, we have chicken. We didn't have chicken in the bath, you know. And chicken does very well, obviously, with barbecue, with marinated chicken, that kind of thing. That's one thing. We also still have red meat, by the way, that we also can experience, I mean, much further with the retailers. Let's say something like natural fish. Natural fish exist in many, is very well developed in countries like Italy, for example. It's not developed at all, or not enough, you know, in countries like UK, where it's mostly coated fish. Well, you know, I can tell you, when it's 30 degrees, you know, you don't necessarily want to eat a fish finger or fish stick. Well, coated, let's say marinated fish or natural fish works very well. Potatoes, in terms of, you know, to get together with barbecue is also something we develop a lot. And I'm not even talking about, you know, the ice cream, which is something new for us. We have obviously a very strong goal in the demographics, with third-rate Croatia and Bosnia. And well, a bit incidentally, somehow, like, you know, we started to develop something in Austria, which is doing well, because we have very strong, let's say, strong people. So I mean, in Vienna, we had a lot of people coming from Croatia, and they did well. So we started to develop these kind of things. Does that mean that we're going to do with ice cream in others, not necessarily, but at least we have the assortment today that is available. And the first thing we're doing now is we're talking to all the countries to see what they see. And also, very importantly, we're also starting the conversation with the trade, because it has to be incremental, and it can be incremental, but it requires also agility, how to move faster from one season to another. So a lot of things, a lot of opportunities, but definitely, frozen food can do well with the summer, and more specifically, with the winter heat waves.

Great, that's very helpful, Stephane. And then second, just any update on the capital allocations priorities. You know, with the stock indicating down, you've done repurchases, or maybe there's a preference for debt repayment here. Any thoughts there?

Yes, so thank you for that. We have done quite a bit of share buybacks in H1, 100 million euros, first year before less than 20 million. We just announced a dividend, so I think from kind of capital allocation, we've done a lot with buybacks and with the dividend. And you know, we want to keep our flexibility. In the past, we've shown to be a good M&A, and the current being able to acquire good companies, but at this moment, with our current valuation, also what's out there in the market, it's not that in the short term, there's an M&A pipeline. Whether we're now committing to buyback,

that also depends a little more on our flexibility. Great, thank you. This

concludes our question and answer session. I would like to turn the conference back over to Stephon, decision maker, for any closing remarks.

Thank you, operator. So while I'm disappointed

by your first half performance, I remain not less confident in the future that lies ahead of us. We have a great portfolio. We have a strategy that is working, and we have a talented team of people, well equipped to deliver the plans we have in front of us. We have successfully stabilized our market share, and have compelling plans to increase our competitiveness in the back half of the year. We are well positioned to delivering accelerating growth when the weather disruption subsides. I look forward to demonstrating that with results when we update you again next quarter. Thank you for your

time and interest in Nomad Foods.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.