Q4 2019 Earnings Call
[music].
Please standby.
Good day and welcome to the Nomad Foods fourth quarter 2019 earnings Conference call.
Today's conference is being recorded at this time I'd like to turn the call over to push Bari head of Investor Relations. Please go ahead.
Thanks, Matt and thank you all for joining us through our fourth quarter 2019 earnings results with me on the call today, our Chief Executive Officer, Stefan Dash maker, and Chief Financial Officer sat music.
Before we get before we begin I'd like to draw your attention to the disclaimer here on slide two of our presentation.
This conference call. It may make forward looking statements, which are based in our view of the company's prospects at this time.
Actual results may differ due to risks and uncertainties, which are discussed in our press release.
Filings with the FCC and this slide in our Investor presentation, which includes cautionary language.
We'll also be discussing non I FRS financial measures during the call today. These non IRS financial measures should not be considered or a replacement for and should be read together with high FRS results.
Users can find the IMF Rs two non I FRS 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 2018 and 2019.
While adjusted figures have been adjusted for exceptional acquisition related share based payment and related expenses as well as noncash foreign exchange gains or losses, and all comments from here on will refer to those adjusted numbers.
Finally users should be aware that 2019 figures have been presented in accordance with high FRS 16, which has the new standard for leases the such certain financial metrics may not be directly comparable to 2018 figures. However, we have disclosed the impact of this change in the press release, where the impact.
On comparability has been deemed material.
I will hand, the call over to Stefan.
Thank you. It's a portion thank you all for joining us on the call today.
Earlier today, we reported fourth quarter in full year 2900 earnings results.
Which exceeded the high end the full prior guidance range.
These results are consistent with the commensurate with US we provided the cagney last week.
And reinforce the strength and sustainably deal for business model.
Financial highlights from the fourth quarter include organic revenue growth of 1.7% driven by 3.2% increase from price offset by 1.5% declining volume and mix.
Adjusted gross margin of 29.9%, which wasn't change versus last year.
Adjusted EBITDA of 116 million euro present growth representing growth of 15%.
And not just the EPS of 32 euro cents per share.
Overall, we're pleased to have delivered 12 consecutive quarter of organic revenue growth.
Why laying the groundwork for Pan European expansion of Green cuisine, and maintaining a gross margins despite elevated raw material inflation.
Turning to the details of the fourth quarter.
Organic revenue growth of 1.7% was broad based with nine or for 13 coal markets growing doing the fourth quarter.
Growth was led by Germany, Italy and France.
Well, okay in Sweden declines.
Oh, the strategy continues to generate low single digits organic revenue growth.
With growth in local.
Which we present, 70% of all sales all performing the average.
The remaining 30% continued to decline into controlled manner.
With the objective of managing these segment of our portfolio for margin and cash flow.
Taking a closer look at the country performance, we experienced a few variations that I would like to comment further on.
Starting with Germany, which achieved organic revenue growth of 9% in the fourth quarter and the 8% for the year.
This robust performance was driven by solid execution, no categories and the strategic expansion for Eagle products into I'd.
Moving on to the UK, where organic revenues declined 1% during the quarter in increased 2% for the year.
The decline was driven by a decision to prioritize gross margins, which led to some tactical volume loss, which we consider to be transient in nature.
The impact of this decision was most acute within owned this is Brent.
Which has a strong seasonal bias towards Q4.
And to a lesser extent Q1.
Looking out we expect the UK to decline to gain in the fourth quarter before resuming its growth trajectory in Q2, once we begin to recover lost volumes at on Betsy's.
As big into a key video exciting plans for the coming year, including the expansion of the Green cuisine range.
Finally, Sweden, which declined 15% during the fourth quarter and 7% for the year.
This is our most challenging market and one way I firmly believe or issues executional in nature.
Sweden, the has not only the highest per capital consumption of frozen food in Europe, but he is also one of the fastest growing frozen food markets.
Offering this brand has number one market share despite the challenges and is very much aligned with the consumer movement towards high current liquidity food, which is great tasting convenient and sustainable.
Going back to execution. This is a market, where we are frankly like focus and discipline and as a result that have yet to successfully replicate the nomad food growth model adopt serves us very well in menu for your other European countries.
With that said, we have an action plan in place and believe the future for Sweden is full of promise.
Hi have appointed a new management team at the beginning of this year and they have a series of actions to not only stabilized the business.
With two return it to profitable growth yet in any out.
This will start with a rigorous focus on the retail partners and our consumers as a result, as well as leveraging our strong heritage or distinctly in distinctive assets and or capabilities within the broader Nomad foods organization.
[laughter].
We believe that the turn the role in Sweden, the we require hard work and as a result to take more time.
With that being said the EBITDA implications are likely to be relatively contained.
Given the low margin profile of this country today.
Turning to gross margins were happy to have maintained or Q4 gross margins versus the prior year, which were somewhat ahead of our latest expectations.
We successfully navigated raw material inflation in 2019, delivering in both low single digit organic revenue growth and slight gross margin expansion before the effect of M&A.
I'm proud of the way our entire organization to come the challenge of inflation in 2019.
As anticipated or cash generation was strong during the for the fourth quarter.
We generated over 200 million euro free cash flow during the year, bringing on net leverage down to meet twos and or cash on hand to over 800 million euros.
We entered twentytwenty in a position of financial strength and remain on the offensive on acquisitions.
We remain actively actively engaged and look forward to sharing news at the appropriate time.
As you heard US described the casualty conference last week or nature of protein focus on mid sized European frozen food assets.
Where we believe we can create value for shareholders.
Our balance sheet and cash flow through provides us ample capacity to pursue these type of these types of deals.
And finally, we further develop green cuisine or planned protein sub brands with strong in market performance in UK and preparations to load the range across continental Europe in Twentytwenty.
In less than 12 months on shelf Green cuisine has already become the number three selling frozen plant protein run in UK.
Putting is ahead of some very notable brands.
Our product in advertising campaign, I've been very well received by consumers and retailers.
Paving the way for an even broader assortment and shelf space for this range.
In Twentytwenty.
We mentioned that cagney that we plan to expand green freezing beyond you cannot and which first loans the range in spring 2019.
We have an ambitious launch calendar for the coming year, including the expansion to at least six new countries in the first half of Twentytwenty.
I'm pleased to shed a green cuisine went live in Germany in January and is scheduled to enter France next week.
We are excited to have created a uniquely positioned brand built on the principles taste convenience its sustainability, which we believe.
Will translate across the frozen food the all in Europe.
We know we have a strong right to win in this dynamic subcategory of frozen look forward to watching these exciting business developed over the coming year.
To repeat what we say that that not cagney last week.
We expect greenco seem to generate over 100 euro million within 100 million Euro in revenues by 2022.
Before turning the call over to semi I would like to provide you with some high level thoughts on our plans for twentytwenty, which called for fourth quarter consecutive year of organic revenue growth in adjusted EBITDA of 400 to 445 million euros.
We have a strong pipeline of new product launches media Activations in promotion plans to support our topline plants.
Revenue growth is expected to be more balance between price and volume versus what we experienced in 2019.
I mentioned green fusion as a growth engine. We also expect to existing base business to grow as we look for flywheel to spin even faster.
Green cuisine is a gross margin accretive business for us and one with significant headroom for growth longer term.
Even though ambition to build a sustainable business here you will see us reinvesting nearly all of our gross profit from Green cuisine, Intrawest DNA in year, one and to a lesser extend in year two.
We expect to face a second year of above average inflation. It twentytwenty due to a combination of some continued raw material inflation and forex.
With that said, we're seeing signs of stabilization on the inflationary fronts.
Basically on fixed prices.
In sum, we expect that our gross margin will be relatively unchanged versus last year that the adjusted EBITDA will grow 2% to 3% in twentytwenty.
This is somewhat below our long term algorithm of mid single digit EBITDA growth, but they're not come that will result in profitable growth and will enable momentum to continue into 2021 and beyond.
As we stated last week, we remain confident in our ability to deliver against a lot Verizon and view this year as an outlier.
In summary, we are pleased with the result and excited for the year ahead.
We have a full slate of strategic initiatives in place, which will fuel to another year of organic revenue and EBITDA growth.
Our balance sheet remains a strong competitive advantage, which we expect in due course will translate into a strong source of earnings and cash flow to complement our base business.
With that I will hand, the call over to semi to discuss the financials and guidance in more detail semi.
Thank you Stephanie and thank you all for your participation on the call today.
Turning to slide six I will provide more detail on our key fourth quarter operating metrics, beginning with revenues, which increased 2% to 628 million euro driven by 1.7% organic revenue growth.
Growth was led by Germany, France, and Italy, and bulky benefited from early deliveries related to January promotional activity.
Fourth quarter adjusted gross margin was 29.9% slightly ahead of plans and unchanged versus the prior year.
Gross margins benefited from pricing and promotional activity, which offset cost of goods inflation.
Moving down to the rest of the BNL.
Adjusted operating expenses decreased 6% year over year, reflecting phasing shipped which we had planned for.
Within operating expenses NP declined 11% and in direct declined 3%.
Adjusted EBITDA was 116 million euro and as expected, including a 4 million euro benefit related to identify 16, the new stand out on lease accounting effective this year.
Excluding this benefit adjusted EBITDA grew 11% versus the prior year.
Adjusted EPS were 32 euros sense for the quarter increasing 10%.
Hi, Fi 16 didn't have a material impact on EPS during the fourth quarter.
Turning to slide seven I would like to redo the PNNT highlights for the full year 2019 results.
Revenue increased 7% driven by 2.1% organic revenue growth and 4.9 percentage points from acquisitions.
We're very pleased to have delivered the third consecutive year of organic revenue growth in line with our long term growth algorithm in the low single digit range.
Adjusted gross margin or 30% in 2019 down 30 basis points versus the prior year.
The negative effect from M&A mix had a 50 basis points impact, resulting in like for like gross margin improvement of 20 basis points.
Rounding out the rest of the PNM.
Operating expenses increased 2% for the year, driven by 3% increase in direct while MP down marginally year on year.
Adjusted EBITDA increased 15% to 432 million euro with Fysixteen, representing an 8 million benefit.
Excluding this benefit adjusted EBITDA grew 10% versus the prior year.
Adjusted EPS was 1.3 euros for the year, increasing 3% by Fysixteen did not have material impact on full year EPS.
Turning to cash flow inside a we generated 228 million euro of adjusted free cash during 2019 compared to 286 million during 2018.
Factors contributing to adjusted free cash flow performance included.
Adjusted EBITDA of falling 32 million Euro and 15% year on year increased working capital outflow of 44 million Capex of 47 million representing 2% of sales.
Cash taxes, a 46 million, representing a cash tax rate of 15%.
And interest and others of 67 million due primary to the reallocation of lease payment from operating cash flow to financing cash was the result of Ipi 16.
We converted 97% of our adjusted EBITDA into adjusted free cash flow, marking a significant improvement versus where we were as of quarter three.
With that let's turn to slide nine to review, our Twentytwenty guidance, which is based on foreign exchange rates as of February 25th Twentytwenty.
For the full year Twentytwenty, we expect to achieve adjusted EBITDA of approximately 440 to 40 and 45 million euros.
And adjusted EPS of one point 19 to one point 21 years.
Full year guidance assume organic revenue growth at the low single digit percentage rates.
And the share count of 204 million.
The guidance does not reflect the potential accretion from any acquisition that we announced it twentytwenty.
As a reminder, we have over 800 million euro cash on our balance sheet and are actively engage on a number of prospective deals.
A few other modeling point for you to consider.
In terms of phasing and we expect adjusted EBITDA to decline double digits per cent year on year in Q1.
Stabilize in Q2 and grow in Q3 in Q4. This is do you see due to both gross margin phasing and the timing of NP, which will be frontloaded in twentytwenty in advance of our green cuisine launch across Continental Europe.
Aside from expenses.
Q1 is also expected to be impacted by relatively flat organic sales due to a combination of some shipments timing from Q4, and our expectation for the UK in Sweden to decline.
However, given our plans for the UK too soon return to growth, we do expect stronger organic revenue performance for the remainder the remaining three quarters of the year beginning in Q2.
Finally, gross margins are expected to be roughly flat versus 2018 with year on year performance expected to improve throughout the year.
That concludes our remarks I'll now turn the session over to QNX. Thank you.
Back to you.
Thank you you would like to ask a question. Please signal by pressing star one on your telephone keypad.
In a speaker phone. Please make sure your mute function is turned off to like or signal to reach our equipment again that is star one that you'd like to ask a question.
First question will come from Angeles, our with Barclays.
Money everybody.
On every morning Andrew.
Two questions for me I guess first Cagney last week and then again. This morning, you discussed the expected cadence for the year on both organic sales and EBITDA on the topline sounds as though the softness is more specific to one Q.
As you said a little more second half weighted I was hoping you could provide a bit more color maybe with whatever specifics you have that sort of add to your visibility to the drivers for each of these and I've got a follow up thank you.
Okay.
So let me start with the sale side and the.
Semi we'll go with the with the EBITDA more specifically, but it's a series of filaments that that makes us confident for Q2, Andrew. The first thing is in the study always starting with the twin negotiations and the then through negotiations have gone well and so we do expect to reset the repair some some of the key relationship this year and.
We had some disruption last year and so the negotiations are completing some are for larger countries. So that's why we makes us obviously more confident.
The second piece is something which was already known last week I should that can is green cuisine. So we will answer at least six new countries in each one probably more.
With the bulk of that activity really starting in Q2.
That will quinsa coincides with a multichannel marketing campaign that we will launch really all around the spring time frame. So that's the second piece and the third piece, which was it is more factual even as that's you know in Q1, the bigger rank was really during the month of January where we saw an expected decline.
The business as we turn to growth in February and we expect that went to two continues for the for the reasons I mentioned. So this is a bit you know the the trajectory between Q1 in Q2 in terms of the terms of sales and earnings run rate.
The third one was on again I just want to make sure I misheard you can find and it certainly doesn't just January was it was as expected for US was it was it went to into decline and then the weak but we've seen is February years as return to growth and we expect that through that trend will continue in March. So that's more more factual in this new remote numbers, we see.
Got it.
Okay, and Andrew maybe I'll, just give a one the one official sentence on the on the EBITDA perspective, because I mean, the point is effectively this imbalance I would say the reality that the DNA is planned to be frontloaded and particularly in Q1, the head of all else equal increasing as we established the Grand ahead of the commercial exploitation in store growth.
Out into individual as soon as steady progress throughout the year based on the timing of inflation as we discussed last week.
Mix benefit that went from green cuisine, and the supply chain savings that are going to come gradually stronger towards the end of the year.
Okay. Thank you for that and then.
I knew nomads first priority for cash on the balance sheet is acquisitions.
That being said I guess with the equity trading.
Below sort of 10 times EBITDA EBITDA.
Why not use I guess a portion maybe the buyback some of your own shares as I would think you know the company certainly are the flexibility to do both buybacks and deals, particularly as it seems the sorts of deals being consider are likely more bolt on or medium size in nature. So I guess I'm just asking if if that you need to be mutually exclusive thanks very much.
Well as you know the onto with nothing is that when we did in the policy. So it's obviously something that we always evaluating the board level and in the meantime, we are firmly engage noisy in this M&A process and we think thats in the meet the near term you know things that we see any of US obviously, the kind of targets that will add more but.
Then the none other than the buyback at these days.
Thank you.
You're welcome.
Our next question will come from Steve Strycula with yes.
Hi, good morning.
Hi fun.
Like cast an operational question about you know digging into Sweden in the UK, a little bit more sounds like.
Were dragging along the bottom and maybe there's some opportunity to improve each of these businesses given some of the leadership changes that are under way can you spend a little bit more time, explaining to us what exactly happened with on passage in the UK Awards to strategic decision that was made and then ultimately how correct my color Q2, and the same exercise.
Mr. Swing I think would be helpful. Just so we understand what's really kind of going on here and what is Sam just a profitability implications. If these two businesses our cash sorry, you know doesn't move the needle ecumenical fall.
Okay, Let me before before starting to its going to the specifics Steve Let me clearly make a difference between UK and Sweden.
UK overall, you know the business is doing well we had the more difficult.
Year last year, probably partly because we had two to put integrate three business into one.
And that took a lot of energy with all through the business is doing well, what we had what happens with with the with the own best seizes at some stage, we were confronted with a with a a very high level of promotion from some of them competitors and we decided its from the in terms of gross profit that we needed to pass.
At this stage we are confident that's you know for what is really strategic for us in terms of phone basis, we will be back at some stage into cost of the year as for other categories in in the UK. So I can see the where are we talking about.
UK coming back to growth in Q2, that's exactly what we mean and and we're very confident you know with the team. The team is doing an excellent job and the as you know in terms and in terms of sales and in terms of food gross profit in in terms of even though this is wonderful biggest obviously your operation and the and the operations.
We like can we always do better absolutely. So there's definitely after you know this one or two disruptions. We had obviously on the company to team up obviously went through some sort of what can we do better what can we improve and I think what I've seen is I'm very pleased with the with the plans. We have ahead of us in Twentytwenty.
Sweden is a bit different Steve and let me first to quantify what what Sweden is all about in terms of sales is one thing is really it's not negligible in terms of EBITDA, it's today around 2%.
So that's what it is so definitely we need to turn that around and it's as I said you know, it's a very much operational in nature by nature in nature, I think we lost a bit the focus and I think it's starting with me by the way I think as you know like without them better from that standpoint, and the we have reacted in the meantime.
Very I will say in the very hands on a way. So we've changed the team the team that we now have in place is is very strong. It is no. Obviously also overseen by by away in some ways all with no in charge of UK, Ireland, and and I'm in the Nordics and.
I'm very confident that is with very hands on approach if we make a big difference. The thing is the difference with you between UK Endo and Sweden is where we have a very clear plan to read too to go back to growth in the in the course of Q2 with UK staggered waibel, however, because it's going to could take sometimes in retail.
By retailer and we know what it is I think it's going to take more time in in in Sweden, One big learning is they need to be Sweden, they need to be closer to the strategic approach, we have taken with with no. My since the beginning which has paid off very well.
I think they we also need to make sure that they have access to all the the let's say the learnings and the scale developed by the central team in in here in the UK.
And obviously that the people are ready to move to go for it. So we've been through a turnaround in the boss. Let me give you know two examples one is the big one that's the I'm. The one the obviously you have nomad in 2000 fifteens with the 16 and the an earlier in something like last year. For example, we were going no way in Spain.
We've changed a lot of things, including by the way some of the key are the key players and the and I can tell you I'm very pleased with that with a went to Spain is doing so we're expecting the same kind of let's say action in the in Sweden and in terms of portfolio in terms of pricing spread relationship is absolutely key.
One of the key things that we're missing at this stage and innovation as well and at the same time.
32% of for EBITDA, but it could be much more Ah that's really what the opportunities for us because the markets. As such you know is is a is a in volume wise in sales wise is a good markets. So again I think we have new issues, but to succeed.
Okay, and then a very quick question for Sami you had 235 million euros of free cash flow. This year, how should we think about that's running directionally as you get a little bit better in 2020, any kind of puts and takes no pass along.
We will thank you I mean, we'll be were committed to deliver about 100% of a free cash flow productivity and the that's clearly the goal we put in place action to continue to deliver kind of cash performance.
Our next question will come from Rob Dickerson with Jefferies.
Great. Thank you so much.
Stefan just a question around green cuisine.
And I guess, you know plant based alternative me in general are entering six new countries faster growth.
Expectations, obviously for the brand in the category.
It looks like based on your estimates depending on the cadence of that 100 million over three years to could let's say add even 1% you know to the topline.
Per year. So if we think about that category relative to the core of were frozen is now I mean do you view the plant based piece in the Green continue piece, obviously is incremental relative to distribution opportunity with the retailers, but then also to the topline and then also just the category for us.
[music].
So the answer the answer is yes to make it simple it's it's a new category.
We expect we expect the cannibalization that will be reasonably low I think it will take probably some market share away from let's see if that's the does the purpose by the way. It wasn't the focus is to take market share away from from meta search and which comes very handy for us dozens of gross margin as we mentioned that really in that case.
Neither you know the gross margins would be accretive to the attributes of our business, which is which is great news. So yeah. I think I think we can only see good things with that with green cuisine, and the level very important as well in some of that kind of things you don't see obviously the numbers. Rob is is the level of intense on 80 or are the country level is is really.
Very very high so people really excited you know they're ready to go for it and importantly is also you know it's not like when innovation once one once one one shot and then it. So it's over I think if you want to be successful innovation you have to be ready to invest yeah in yet out that's that's key.
Otherwise you know, it's just you know it's a it's a nice number you know in your in your your total sales for one year and then it's going down we don't expect to do good that way, we have we want to really further invest so and it. So you know I don't have to receive referred back to Andrew into what you mentioned about between PC and.
About Pan plant protein, but this really you know something way, where we see a win win between ourselves the retailer in the consumers.
Okay, perfect and then just quickly.
In terms of.
Acquisition focus Oh, I've heard you and.
I missed Franklin and others discussed different areas you could go overtime that I've heard you know looking at different countries.
Broadening the scope.
Now also Purdue, let's say feel like more specifically in the past six months or so it definitely be you know you're definitely saying you know we're focused more on that kind of mid size frozen core within western Europe or within Europe.
So I'm just curious you know kind of given some detail or more detail you during the past if there's any you know it any more color that you can provide with respect to category for the category focus or is it still we like yes, we would love to be in frozen pizza ice cream would be interesting or.
Is it more broadly hey, we're just looking for opportunities. Thanks.
Well I think you can't you have to see that in layers. The the mid to the the show to me turned in a priority is definitely to finish to complete the gaming in frozen food in Europe, we are the undisputed leader.
And then when you have to see country by country category by category and channel by Channel you know, where we can go.
I think I think we have not changed or plans in other words, we were going to invest and acquire where we think we can make a difference where we can lead.
And then and that's definitely a the good starting point is though is the current position in frozen food the in the in Europe. So that's why you know we think it's very consistent with what we said.
Okay perfect. Thank you so much you're welcome thanks.
Our next question will come from John Baumgartner with Wells Fargo.
Good morning, Thanks for question.
[noise] agile actually doing actually if you kind of thinking about the evolution towards that that long term EBITDA margin target and some of the net revenue management 29.
For up to five lever that drive improvement there. Thank you advanced status by your definition and assume that product doesn't just get a wall. Thereafter. So is there a way to think about how do you need to dance levers continue to improve in the second generation or third generation Salon and over those five and are in levers, which do you think will prove most impact.
Well for that program going forward.
I think it this is a process that needs Concentra invention, John I think you're hitting on a very important point on the on that one because at the end of the dates and then going program and the Advents element that you see there in the classification in Seattle and the different legal really correspond to the capability, we have been building and the impact on the the business we have to reinvent ourselves.
In many ways in terms of the collected changing and so effectively we have to applies judgment each of when it comes surprising VPA in some situations become a figure and opportunity for driving incremental sales one way or the other we have to remarks are different than inventory that into what the consumer can there. We then what the retailer can bear with legal 14.
Before three minutes picky on the who trade turn side. Okay. So at this stage is nothing element, which is about less but it's about clearly investing more to get a better return on that that that's the skill set probably that we need to further grow in the or let's say managing overall in our him, but view that doesn't know pocket give us to constantly reinvent our.
Self reflecting the learning from the path if we optimize promotions one year, we will have to optimize them then they typically will get new learnings even the fact that competition does instance, still on that so we still view that as a big lever for accelerating our growth. Overall, however, as you have heard from US I mean, twentytwenty marks as well.
The point, where we wouldn't want to balance the growth between effectively the pricing side and volume in many ways. So I think that's the thing which will be a take into account as we move forward.
Great. Thanks for that and then just to follow up in terms of Green cuisine wondering if you could provide a bit more context, there in terms of how the plant based ramp come together because it sounds like there's not to be a lot of capex on your end and look at naturally they jumped in pretty quickly with some partnerships with operators further up the supply chain [laughter] the role of third parties here at weather.
R&D your manufacturing as kind of build this up how much they're working on outsiders going forward do you think.
Why don't you you're right in terms of Capex at this stage is reasonably limited use you know we have we have very strong partnership with a with suppliers.
You know these are very strategic partnership and we very pleased with what what we have at least it with these guys just find what that's one thing second thing is we also have a strong R&D department, that's really going from obviously what is provided by the suppliers. How can we make sure that we find this sweet spots between let's say taste.
Has and sustainability and that's basically that's where you know we spend most of full time of energy to find exactly the sweet spot. It's not good it's not capex, but that can tell you. We saw its time, it's spinella such a it's not easy.
I think the the initial the initial probably quite frankly between US John was well wait grade from the system to be sent bonds were great from that standpoint than where terribly boring.
And that we were pleased with that and so we have improved over time and we found something which we believe is really a lot I mean space I would never say spot on because we can always improve but it's really a nice nice nice sweet spot between all these things. So that's that at this stage should we at some stage you go to further vertical maybe but at this stage.
We don't think you know it makes a lot of sense because what you see is we have all the fundamentals are really the product is great.
We are you know.
Frozen food is we it's really all category, we have the go to market. So we don't need to invest behind brought to market. That's also fundamental and though we coming with something which create value in terms of gross margin in further so so that's the other these states. So at this stage quite frankly, there is no real need to further invest capex is let's say.
We have that we have the capacity we know what we can do and it really it goes way way way way beyond our expectations I can tell you we will be very very pleased to spent the capex or that is necessary and you know that or balance sheet is ready for that.
Okay. Thanks for your time appreciate it.
Next question will come from Jon Tanwanteng with CJS Securities.
Good morning, gentlemen, thank you for taking my questions. My first one just for Sam.
Just for Sami how much revenue did you pulled into Q4 and how much expansion did you pushed out into Q1 or beyond just want to get those numbers if you could.
It's about 1%.
What what percent of self.
When pacifica there.
Okay, and then on expense side.
About even no no no nothing nothing okay got it.
Second just because someone has to ask it how are your positioning for a potential client of ours and packs or maybe start with Italy and your exposure there, but also across the continent and that further.
Do you guys actually benefit from people staying home.
Buying frozen food or does it go the other way for you.
Oh, well, it's a good questions on I, Let me, let me handle that you know the first about the numbers you you're right. It's a Italy's is a big markets for us it's around the 17% of four four business was big and the and the quite frankly, the nice margins with an important one so that'll be the context today, but it's due to your point it could go to it could go beyond and obviously what.
We doing right now with the 30 miles away, we preparing ourselves internally, whether we like it or not is the is the ism is an interesting test and learn for for the rest of the musician if it happens, but the pricing number one and when you know we don't have enough abolish the protein number one is to ensure the safety for employees. So we have plans you know we haven't.
Lets say global incident management team, which is ready it's centralized starting from different countries and obviously, we follow very very carefully all the double huge it should guidelines and then yes again as you know it is very much you know is very fluid process. These changing sometimes by the hour. So that's one.
Thing and that's operating number one.
From the commercial standpoint.
It's interesting to see that he needs to lead a you know you have which is which is expect to be expected you have a you have a lot of them.
Oh guns consumers buy I mean doing obviously of all through the overexposed overage expanding in northern.
Spending a lot behind behind frozen food frozen food from that standpoint, you know is.
I would say from my experience in do you in the U.S. its we'd like them. It's like a you know a bit of storm you know when the people are rushing into the stores before before before the before the storm. So it's a there is a bit of that by the way the which.
You know some does assume to some extent I think its was just the then the before created some some options for us in terms of a coping with demand.
Not limited to easily by the way, but no mother produce a little bit in other countries. So we were making sure that we have the appropriate inventory safety stock. So if needed. Obviously, we will we will push to the of the production even further which is something we doing a really to some extent and beyond that you know if you going a bit further into the supply.
Hi, Jane we have a reasonably read oppressively small supply exposure to China, mostly in fish.
And again, we have strong contingency plans in place to work through situation, we have already phone summit in actives in other countries, which which is fine.
So we feel we feel safe. So we were planning obviously as as all of US you know, we obviously, we planning for the worst and then it's very situation and we were hoping for the best lets the short at this stage you know even in Italy. Its the situation is really you're under control so does that and yeah I forgot to mention.
As well we have a local planning easily that's a competitive advantage.
Okay, great. Thanks for that color finally, just on the meat free and create good inside it. It's a 100 million in revenue a run rate exiting 2020 of the realized and also just getting to that 100 million I'm acquire more investment than than usual would make.
Maybe outside of your standard a MPD or promotion budgets.
It's a it's realize that's one thing second in terms of investment than into a point, you're right or not you mentioned necessarily capex or whatever in terms of for in terms of his DNA in terms of in fees would require a lot. So as you know that's what it was something we mentioned last time last week in Cagney, that's we going to reinvest most of all gross.
Profit for year, one obviously in one or behind the NB. So that's a that's an important investment and then we're not going to limited to get one but don't get me wrong I think it's going to go down as obviously, though there's the vote. The soup sales will go up the pro the pump the proportion will go down but definitely it's an import.
Investment year after year, so the worst mistake in them in the innovation is still come with a big push here one and then not to have the patients yeah tool because you have another round of innovation that does seem to be more exciting in all these things that's not what we want to do we know we see strategic for us its innovation it's funny.
It's a white space and we have what it takes two to win and by the way I forgot to mention as well as you know that the the gross the gross margin in averages is is there is very nice so it's accretive for us in terms of gross margin.
And with that gives us space, if you see too for the reserves.
Great. Thanks, if I can't wait for you guys are sent some over here. So we can try it.
[laughter], where will it will and the you know.
Series of new products coming out I don't think it's a sensitive information, but it's never ending so it's good.
Great Thanks for calling.
Our next question will come from Bill Chappell with Suntrust Robinson Humphrey.
Okay.
Thanks, Good morning.
Have you might have you.
Just going back to that kind of the UK and particularly on best season, and good tells me.
One on our best is I would not aware that there was that much competition for frozen Yorkshire puddings around the world. So maybe you can help me understand how you're seeing out promotional efforts there and then and then to either with regards to that.
Yeah. How is this what you're seeing now what's kind of organic sales declines with on best season, and it sounds like couples doing fine in how does that change your outlook as you're looking these midsize acquisitions.
Well I'd say the two to simplify on basis. There is no really strong competition in Yorkshire, putting a search which is you know the bulk of our midstream battle by the way that's one thing, but unless it is not limited to Yorkshire, putting a it's a there is also potatoes and in potatoes, you have to make it simple.
You have two big pieces, one is roast potatoes, which is also part of for all mustering bottles together by the way with the Yorkshire, putting I mean I'm getting to into the technicalities here [laughter] and you have chips <unk> chips is not the must be button for us. It's a really today dominated by by Mccain.
And so that's where the competition is build a and that's where you know to some extent we lost a you know in terms of of distribution at this stage and Thats, where definitely in the potato arena that we want to to get back in so that's a that's that's so that's the objective. So the learning the learning I would say that way again overall with.
Both we were pleased with the with boots allows and with that with on basis. So someone better someone worse, but again I think you know the top line is I'm not you know I'm not I don't have any reason to believe that the we that's the topline is up into the right way. So that's would be that should go back that's probably something we slightly underestimates the learnings.
So obviously the level of reaction of some of the competitors once they see you know the number one in frozen coming in if you have it obviously a big competitor.
That's a learning and the launch of this year something that we going to put into can see the to tweak to include you know you know future acquisitions.
Got it and then again on that same line I mean, what are you expecting for green cuisine in terms of competition, because I mean, I think you're the only.
For the certainly the largest player kind of pushing you know at your price points. Most the rest of the competition is higher price point. So are you expecting a competitive response and when we're modeling or we assuming that most of the investment is coming in.
Advertising and marketing or are there going to be some trade promotion to try to have even more of a a price gap to drive trial.
Thank you need to make a difference between UK.
Which is already a market that is reasonably well penetrated and the you know we mentioned that we and number three.
Player, which means that you have a number one in them, but you.
The more than the one is gone.
So it's a big it's a big competitor.
And you know, it's it's a traditional competitors that there's going to work to work and compete with the same kind of weapons. We do have today combination of innovation and be distribution you know the normal FMCG twos in other countries. It. It is much much more fragmented it's much more a small small players and then.
The game is is different.
So for us and the we think you know we obviously, we get to gain faster probably you know he is very strong position.
That's that's.
Yes, that's where you know I think that's how are we going to compete so UK one thing.
And and Ah you, others or another way this being said what we've seen in the UK is the customers end to consumers.
I'm pleased with though with the with or products.
We plan to expand.
The range very much like the Germans you know than that not limiting themselves to three skews. They go much further which is which is probably going to be the approach for most of the countries.
Got it thanks the color.
Once again, we will hear from Steve Strycula TV, yes.
Hi, I just one quick follow up question on Italy, I appreciate the context of how much l. exposure. It is but so far can you just clarify had there been any supply chain disruption issues today that would be part one and then part two.
Has there been any commercial sales disruptions within it only meaning its consumer take away in the stores and possibly impact your term pantry loading negatively impacted any type of clarification on the change would be appreciated. Thank you.
The answer is no at this stage you do we haven't seen any supply disruption all the way through by the way. So obviously from us being supplied in terms of in terms of food commodities in raw material to us supplying the them the retailers what what we've seen is as I. So as I told you as we've seen in some cities.
We have seen some obviously, a especially as it in the traditional trade and I'm I'm going very micro here in the traditional switch small moments and mom and Pops, we've seen some people get going out of stock at this stage and we working together with them to work to find some solution obviously to be supply.
So that's not that easy indices for them. It was 11 cities that we mentioning because you have to you have to its its go on time fronting sorry. So that's it's a bit more complicated because we are we ready and with all the other big guys.
The saloon Gatherco not of the World is good for the World in Italy, you know, it's nice normal it's a it's a normal supply process at this stage and as I said saves us wrong.
All right. Thanks.
Our next question will come from Robert Moskow with Credit Suisse.
Hi, Thank you Ms. Jackie much on for Rob Thanks for the question.
Just a quick one here so just to clarify what happened with price negotiations with retailers Cagney. It sounded like you were saying that you couldn't fully raise price to offset these fish inflation or have you fully offset that have you fully raise price starts at the cost.
The the point on the on that is we think.
I think we need to three said what you said I think what we said is if it you end the middle of the negotiation I mean, ending in some countries and others.
And at that stage, we have a pretty good return on the conversation we had on executing a price increase what we did say that we made some strategic choices on pricing where ever.
There was a change in the competitive environment. The one thing that your focus that is making sure that we don't nutshell go away and that we have to defend our business and therefore wherever that made sense, we leveraged the totality of the mix in the portfolio in order to execute the pricing into telecity and not necessary to applying category like.
Degree the pricing required to cover inflation.
Got it. Thank you and just one follow up here you mentioned it but I just had another clarification did did did supply chain productivity fall below your expectations in 2019, and if not you building off this momentum heading into 2020.
Yes, the answer is no.
Yeah, but you may remember that we were I was not pleased with the performance in 20 team.
But I also said that we've made a lot of progress in 2019 and I can tell you what I see is it's gone it's going to continue so they they keep raising the bar we're planting the seeds for a strong program as we had mentioned over let's say you're on your productivity that would be a substantial contributor to our growth and that goes through a very.
Well structured the plan plant by plant and a product by product to make sure that we generate these productivity to enable us to grow the business <unk> bottom line and as we'll reinvest as well in that category that are delivering great returns.
Got it thank you.
You're welcome.
And we will now hear from Donald Mclee with Baron Merck.
Hey, Donald but.
Yep.
Right operator lottery try to the next question. Please and then I didn't know.
Right.
We have no further questions at this time I will turn the call back over to Stephane, deshmukh or with any additional or closing remarks.
Okay. Thank you very much so thank you for participating on our fourth quarter earnings School.
We're pleased to have deliver the third consecutive year profitable organic revenue growth and have an exciting set of planting twentytwenty.
Including the Pan European launch of Omead for your range Green cuisine.
Our balance sheet is strong providing us significant capacity to would consider acquisitions in coming months borders and yours.
Thank you for thank you for real time, and we look forward to updating you on our progress when we both Q1 earnings in early May.
That does conclude our call for today. Thank you for your participation may now disconnect.
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