Q3 2020 Nomad Foods Ltd Earnings Call

Available across 12, all European markets.

We activated a new multi channel advertising campaign across several European markets during the quarter to drive trial and awareness.

And finally.

We remain active on the M&A front and look forward to updating you in due course.

We have the financial flexibility to pursue this objective in.

In the meantime continued to generate strong free cash flow.

I'd like to provide an update on the sustainability commitments, where we're making great progress.

I'm proud to share the news that we recently joined the 10 2030 initiative.

The collaboration of more than 10 of the world's biggest food retailers and manufacturers each.

We're seeing how the pandemic may affect the balance of this year.

The guidance that semi we don't line is this in his remarks.

Does not yet include the potential impact from the recent coffee related restrictions so you're of course Europe.

Having said that we have strong underlying momentum supported with investments behind OCO portfolio Green cuisine and consumer retention.

It didn't seem more detail.

Thank you Steve found and thank you all for your participation on the call today.

Turning to slide six Ah, we provide more detail on a key third quarter operating metrics, beginning with revenues, which increased six 7% two 576 million euro driven by 5.4% organic revenue growth and at 1.7% benefit from calendar timing upset.

By 40 basis points from foreign exchange translation.

Organic revenue growth was in line with our expectations led by a blended retail business, which represents 90% of our sales and grew just over 7% during the third quarter.

This was upset by two percentage point drag it from food service and private label, which declined 23% and 5% respectively. During the quarter.

Second quarter gross margins expanded 90 basis points to 34% due to a combination of pricing sufferable mix and fixed cuts leverage.

This marks a second consecutive quarter of gross margin expansion as realize the benefits of supply chain productivity and opportunistic raw material purchases.

Moving down to the rest of the P&L.

Adjusted operating expenses increased 4% year over year, reflecting growth in indirect animal is declining A&P.

Adjusted EBITDA increased 13% to 109 million Euro and there's a cps increased 20% to search your sense for the quarter.

Turning to cash flow slide seven we generated 237 million euro of address it free cash flow during the first nine months of the year equating to 122% cash conversion.

This is an exceptional outcome when taking into consideration the rebuilding of our inventory stop this summer and the fact that the third quarter is seasonally depressed due to the harvest and other factors.

We continue to make significant progress in a cast breakthrough intervention focused the lower part of working capital a true Testament to our entire organizations commitment to creating value across both the P&L and the balance sheet.

We continue to expect to win the ear with rubbish cash generation and cash conversion about 100%.

Just a question of drawn I know you had mentioned you had some commentary around 2021.

I thought I heard you say.

Organic revenue growth EBITDA, EPS and it kind of went out to the timing was it but all this is I I didn't hear what kind of what you said about 21. It kinda like we could be kind of in line with consensus or maybe there's there's still growth in 21 and that was it.

In line with the follow up commentary around you know growth the nomad trying to pre during and post two.

2020 in the heart of the pen down actually just want to clarify the comments on 21. Thanks, Okay.

Well, Yeah, let me clarify and maybe you're doing there. After you know we leave it to a.

We do have a perspective on the on the retention for new consumerism and coming in.

He's in definitely I mean, which will continue to be a girl driver for us.

Because we input service in fact, he continued let's see investments the return of the investment that we have made him and he still carries over into the next year.

Okay stripper a password on thank you.

Thank you Rob.

Thank you.

The next question comes from Tom Icon Baumgartner from those Fargo East go ahead Sir.

Good morning, Thanks for the question.

I'm curious as to what you've seen or heard or maybe your expectation as to how the sustainability efforts may lead to you any sort of direct cost improvements tied to the waste initiatives and maybe on the revenue side, the extent to which you think the program can provide a competitive advantage incremental appeal for your brands relative to competitors or even other.

Frozen food categories, so any thoughts there would be helpful.

Yeah definitely I imagine you go on the on November 10th we we spent quite some time on sustainability, because it's really it's really fundamental for business. The good news for US is sustaining leads assisted he does very well with the with what was the foods in terms of waste, but also if you thinking you know what more productive.

No a strategy in terms of M&A. So it's really focused on frozen foods consolidation in Europe and.

So thats the reason backdrop and we.

We believe you know with the cash flow generating including obviously you know the the right allocation of capital we can do this.

And so.

Thats one thing second.

You know M&A M&A wise, it's quite simple you will have to be ready because you have to be flexible you have to be prepared and then what the from a moment you know attained.

A loan or decides to sell you have to be there as simple as that.

And that's what we're doing sometimes you can be more proactive sometimes a bit less.

But things are coming so back to your question about it.

Lets say you know.

How is it possible to do M&A.

I will tell it's a volatile world and it has an impact on the on M&A as well, but you can see in the rest of the world M&A still going on.

Very helpful. Thanks, My other questions have been covered thank you.

You're welcome.

The next question comes from Rob Moskow from Credit Suisse.

Please go ahead.

Hi, This is <unk> on for Rob. Thanks for taking my question to Sunday re acceleration in your consumption growth as consumers are set to spend more time at home I now because the new locked down are you seeing any meaningful distinctions across geographies and also how as you know.

Consumer behavior changed in the second locked down period and in terms of what they're buying and how much they are buying compared to what you saw earlier in the year.

So to your first question the answer is.

Across the board in Europe, not really.

Alright, consumer economic environment, I would assume less promotional dollars more to the advertising side, but I just want to get your thoughts on that and how you think about that going forward.

And I mean, it's a it's a very dynamic environment as you can as you can imagine and we have to remain a super ojani and the way we manage our own spending their kill yet these very stage. It killed the current plan to spend the proceeds and for US. It's all focused in maximizing the mix across.

The product lines and the different victors of spending utility in order to kill the end of the year or with a very some momentum and gets into the next year with this whole momentum as well. So I mean that at this very you said you saw about managing location I mean of spending.

Got it and then just one on on the cat on the cash flow Oh, sorry.

No no. Please keep going I was just about to say that it's.

It it's really this very delicate balance between.

I'll be getting through to fall.

And obviously hard to make sure that you know we of course, a fast start with the right level of N B C H U.

One because again as we said.

Good return and is the right thing to do to exit the year with the right momentum going into the next year.

Okay.

And on the cost side.

We had seen some spot market weakness and fish and I haven't checked recently I've been on the back of foodservice weakness.

Can you update us on whether or not you're seeing cost relief or where where are your input cost pressure stance.

But cost pressure relief stands.

You know doesn't to encompass everything, but that's showing sort of some increase in private neighbor chairs just send the latest you know few weeks here. So I just wanted to get your perspective on what you were seeing on you know private label versus brand it tied in the fish category.

So let me let me start to send you an email just I I think I understand you're born I think quite frankly if.

A few weeks can be and and most of the time. He's also approval related. So sometimes you know you have a week or so two weeks, which will last week last year. We had there was some sort of award this year. They say, we don't so quite frankly fish remains more than that but you know if there is someone gets degrees.

For us.

Back to the previous question, but we got we were going to invest a lot and we're investing a locked in queue for and in other words.

And it doesn't change anything to to a game plan B B private label.

Good money to this vision and we'll let you know, but again I wouldn't really read too much about you know Q3 Q4, because that's not we are we monitor it we managing the business, it's really up to offer the countries at the moment the respective markets to see exactly when they want to invest.

With the progress we have achieved so in something like at Yale. So we already have achieved this hill H b, 7% market share the number three brands and still making enough progress and very close to the the retailers, we know that some some of retailers.

Big ambitions in in in that category, and we want to be part of that forget it with them.

So that's one thing then you have you can go to other countries, especially in Continental Europe, which are less advanced.

And there you will have you see some theory of new initiatives in countries like Germany, which is fine because it means you know that they kept it can be needs to grow so.

You need to think differently compared to I'm not sure I'm not sure I'd say category. The category first has to grow so we'd be pleased with with these these additional offers and obviously, it's our job with with the quality of our products and with OAP and obviously you instill activation to make the difference and then in some countries.

It's really we are we becoming us the fact to the market leader because he was studying really from scratch and again, it's it's all just to make sure that people are going to start to understand the beauty of plant protein. So a lot of things to do from from different angles and and then.

D C. At the same time, you also need to make sure that that it's it's it's also a big impact in terms of I D.

When you just start other than you and you are range off the off let's say of Nuggets. So poetry free Fantastic project I can tell you.

I don't know if you if obviously if you happen to be in the UK, which is difficult now I know, but you should try to you know they do when they get there. They just fantastic and we know it's going to make a difference had the numbers.

A very very very interesting, so and I could speak for hours about <unk> as you can imagine it's big for us.

Okay.

Was very helpful. And then could you are seeking a little bit more detail about how the covid retail landscape packing your scary skew assortment.

Essentially about learning that's provided about your brand new package architecture, and then maybe how innovations are being able to get to market.

Recently in the context of.

Great. Thanks insert it sounding a little bit like Green cuisine isn't innovation that may be uniquely successful and is it fair to say that maybe some of your competitors aren't having the same level of success, finding innovation or am I interpreting.

Well you know it's difficult to speak on behalf of all four competitors.

And let's not forget that competition is goes both ways. It's it seems in frozen it's frozen food business also in in obviously in in CIT in fresh. So we have to we have to think both ways how to lead and we see how to make sure that frozen is going to be where we presented so the rest.

I mean, the frequencies a bit lower than in till the end or in obviously an ambiance.

This being said.

We pleased with what we're seeing right now and my invitation is to to come to the Investor day.

Because we will have more to say about you know all ambitions and they'll how are we doing so I would like to.

You know this the content of our conversation on November 10th.

[laughter] fair enough [laughter], Okay. So can I just ask about the plant based category. When you look at the category as a whole.

Oh.

Where do you see.

Yes, it's it's a perfect innovation.

It's a perfect you know.

New new category, because it's it's highly and create incremental with Remodulin that are obviously are in line with our expectations. So so far so good but definitely as we came out and it's also a category and rightly so where we need to invest ahead of time and that's what we've been doing.

In 2020, and that's what we're going to do in 2021.

Thank you very much.

You're welcome.

The next question comes from anchor offering from U.B.S. Please go ahead.

Hey, good morning, everybody I, just wanted to talk a little bit on the Nordic region I believe in her lap the challenges there and so just wondering and what you're seeing now and how you're thinking that everything turned around.

So.

Yes, it's a cheap as you know and I would though I wouldn't speak so much about the Nordics I would just limit myself to.

Sweden.

Because the rest of the businesses.

Is doing well.

And in line with the expectations.

So in Sweden as you know we have to rebuild everything I wouldn't say from scratch, but quite frankly quite deeply into something we've been doing with that with the wind Hudson who is no in terms of UK and Nordics and in Ireland. So we have a new team in place.

I think weve changed a bit you know the mindset as well or the mindset is much more.

Customer driven.

And and we see it as you know, we starting to really make progress so.

Starting making big progress means you know better relationship with these people and starting to see you know obviously.

The space allocated to a study to increase again, so we see that little by little its going to take place in the call. So for the next quarters. So you want don't expect anything you know spectacular in Q in one quarter, it's something that's going to take to the EBITDA be starting to see some.

Some interesting results also some interesting results pretty soon in terms of the gossiping is the optimization, especially at the logistic level. So I'm starting to see some green shoots a brigade don't expect you know a quick quick quick turnarounds, but I think its really starting first from our to be built the top.

Line and that's exactly what's what we are doing at this stage.

Okay very helpful. Thanks, Mel Parker.

There are no more questions at this time I would like to turn the conference back over to no matter. He knows the pontiff maker for any closing remark.

So thank you operator, and thank you for joining our third quarter earnings call.

Our business continues to perform well amidst the cook 19 pandemic.

I'd like to reiterate the comments that I made in my prepared remarks, we having an exceptional 2020.

And are planning to build on that momentum in Twentytwenty, one with organic revenue adjusted EBITDA and adjusted EPS growth.

We're generating a significant amount of cash and remain active and well equipped.

Pursue M&A agenda of strategy.

And we look forward towards thing you on Investor Day next week to be had virtually as you know on Tuesday November 10.

Thank you.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

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