Nomad Foods : Q2 2023 Earnings Presentation Transcript

Corrected Transcript

09-Aug-2023

Nomad Foods Ltd. (NOMD)

Q2 2023 Earnings Call

Nomad Foods Ltd. (NOMD)	Corrected Transcript
Q2 2023 Earnings Call	09-Aug-2023

CORPORATE PARTICIPANTS

Anthony Bucalo	Samy René Zekhout
Head, Investor Relations, Nomad Foods Ltd.	Chief Financial Officer & Director, Nomad Foods Ltd.
Stéfan Descheemaeker
Chief Executive Officer & Director, Nomad Foods Ltd.

OTHER PARTICIPANTS

John Baumgartner	Jon E Tanwanteng
Analyst, Mizuho Securities USA LLC	Analyst, CJS Securities, Inc.
Peter Saleh
Analyst, BTIG LLC

MANAGEMENT DISCUSSION SECTION

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

Anthony Bucalo

Head, Investor Relations, Nomad Foods Ltd.

Hello, and welcome to the Nomad Foods second quarter 2023 earnings call. I am Anthony Bucalo, Head of Investor Relations. And I am joined in the call by Stéfan Descheemaeker, our CEO; and Samy Zekhout, our CFO.

Before we begin, I would like to draw your attention to the disclaimer on slide 2 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, we refer to those adjusted numbers.

With that, I will hand you over to Stéfan.

Nomad Foods Ltd. (NOMD)	Corrected Transcript
Q2 2023 Earnings Call	09-Aug-2023

Stéfan Descheemaeker

Chief Executive Officer & Director, Nomad Foods Ltd.

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 CAGNY earlier this year. Today, we are raising our 2023 EPS guidance, boosted by our solid first half operational 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 and 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 farmed fish.

Our new farmed fish products have become a cornerstone of our innovation platform this year, with our exciting Basa 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 have taken great strides in developing our revenue growth management capabilities, helping drive positive mix and manage costs.

We are now laser focused on the execution of the third leg of our strategy, our new A&P investment program. Our A&P will increase significantly in Q3 versus the same time last year. Additionally, we will return to more normalized annual rates of A&P 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 A&P 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 investment, we're also normalizing our 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 investment reaches 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 the high teens pricing offsetting high single-digit volumes and mix 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, flat 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 rolled 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

Nomad Foods Ltd. (NOMD)	Corrected Transcript
Q2 2023 Earnings Call	09-Aug-2023

we are in a virtuous 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 remain 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 over the past few years, and we have become much more flexible and strategic in how we acquire key inputs. We've left a percentage of our raw materials uncovered to take advantage of some favorable price trend developing in the market and we 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 EPS guidance to €1.54 to €1.57 per share from our previous €1.52 to €1.55 per share. This represents an adjusted EPS 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 over 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 our upcoming A&P investment.

A great example of how we are successfully leveraging the power of our brands across markets is Goodfellas pizza in Continental Europe. Last year, we successfully rolled out distribution outside of Goodfella's 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 promotional freezers managed by our sales force. Our Adriatic region is shaping up for another great summer. And our supply chain is meeting the challenges 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 built 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 fact-base support for strategic decisions, further enhancing portfolio value.

We are boosting A&P spend by more than 20% year-on-year with the bulk of that coming in the back half. We expect A&P 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 inflationary environment, putting less pressure on margins. As our new media reaches the consumer and our price gaps with competition narrow, we are already seeing green shoots of improvement in both volume and market share, especially in many of our Must Win Battles.