Q1 2021 Nomad Foods Ltd Earnings Call
[music].
Okay.
At this time I'd like to turn the call over to Tampa Bari head of Investor Relations. Please go ahead.
You for joining us to review our first quarter of 2021 earnings results with me on the call today, our Chief Executive Officer stuff on desk maker, and Chief Financial Officer of San Jose accounts.
Before we begin I would like to draw your attention to the disclaimer on slide two of our presentation.
This conference call May make forward looking statements that are based in our view of the company's prospects expectations and intentions at this time, including consideration related to the impact of COVID-19.
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 I F. R. S financial measures during the call today is non I F or S financial measures should not be considered a replacement for and should be read together with I F. A rest of the results.
Users can find the I F arrest to nine I F. R. S. 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 2020 and 2021, all adjusted figures have been adjusted for exceptional items acquisition related share based payments and related expenses as well as non-cash FX gains or losses, and all comments from here on will offer to those.
Dusted numbers with that I will hand, you over to Stefan.
Thank you that bush and thank you all for joining us on the call today.
Earlier today, we reported first for the 20th wins when results.
Which represent the highest score the day revenues Ah.
Just that they'd be dull and not just the D. B S. You know companies history.
We please do we bought a strong style through the year as we anniversary accidentally the demon, resulting from the COVID-19 pandemic.
Before getting into the deep end of the quarter.
Like to leave you with a few messages upfronts.
First with a performance that's weird she even Q1, we are well positioned to deliberate all foods you guidance.
When we interest used it in February we quantify the guidance as ambitious but the the cheesable.
Well the one you want performance, we are increasingly confident you know ability to achieve these plans.
Seconds, We believe all records Q1 performance would that'd be even swanger.
Do we not being capacity constraints.
Sustained and innovative demand exceeds is forecast.
One 8% organic revenue growth. In addition to the contribution from M&A as we acquired finished Switzerland.
Gross margin expanded 130 basis points.
Great outcome overall, and one that sets nomad apart from many other package food companies.
Adjusted EBITDA growth of 15% to 138 million Euro.
And that just that EPS growth of 42%.
47 euro cents per share.
We achieved one 8% organic revenue growth in Q1.
Which built on the seven seven growth during the first quarter of last year when demand accelerated at the onset of the COVID-19 pandemic.
Oh Q1 performance represents 10% organic revenue growth on the two year basis.
Mhm.
Both during the quarter was once again led by a branded retail point concert fish.
We continue to build around or call with innovative new products losses, such as green cuisine.
With a panoramic knowing it's 15 months, we continue to experience elevated demand as consumer mobility remains restricted across Europe.
For example, many corporate office is remain closed and restaurants still have capacity restrictions.
With that said, we also experiencing more rational shopping behavior that noted in the pandemic.
Consumers have developed new routines, which includes more family means.
And the purchase of foods online.
These trends are likely to persist and now were addressed by a portfolio.
Overall, we continue to track in line with our retention expectations and continue to engage with the millions of new consumers, who purchase of products over the past year.
Nomad, we continue to invest in our brands through effective advertising breakthrough innovation and superior products.
These efforts, which have driven though successions 2017 will continue to fuel our performance in the years to come.
While helping retain you consumers who entered the offers for you and since the beginning of the pandemic.
I mentioned earlier that we achieve strong Q1 results despite capacity constraints.
As you may recall capacity utilization was it 90% plus in our largest factories prior to COVID-19.
Resulting in operational efficiency.
However, it limited our ability to fulfill a sustained level of demand like we've seen over the past 15 months.
Since the onset of COVID-19 with.
<unk> Street supply constraints true tactical actions, including Praisings increased shift and select co packing arrangements.
These actions resulted in improve service level and the highest city stock last summer.
After the first wave of COVID-19.
The second wave, which began last November.
Stimulated a new in enforcing level of demand.
Despite of efforts to accelerate new Cassie capacity versus the first wave.
We were still unable to fully service customer demand and this resulted in lost revenue during the first quarter of 2021.
In addition to need term litigations.
We have also made strategic decisions to invest in new permanent capacity.
That will fuel growth in 2022.
And beyond.
This includes a new prediction production line at a factor in the UK, which will go live later this year.
These actions underscore of confidence in the long term growth perspective of business, which fully aligned with the ambitions of our retail partners.
If you want supply constrained not only led to out of stocks.
It also ltd, the ability to promote of products.
Despite the challenges.
Many markets have made progress in building swung the joint business plans with the key customers.
This has led to a shift in the timing of southern Q1 commercial activity.
The rest of the year.
These plans, which are expected to correspond with increased supply true.
The results in a positive market share inflection beginning this summer.
Alignment between our strategy, our purpose of serving the world with better foods.
From a commercial perspective, we have already applied on must win battles framework to this business.
Identifying the core areas of investment and mobilizing actually activation plans in support.
In addition, we are introducing innovation such as Green cuisine, which is expected to be available in Switzerland. Later this year.
Overall, the FINRA, Switzerland integration is off to a great start and with strong performance during Q1.
Finally.
We announced our agreement to acquire 14, <unk> frozen foods business dropping during the first quarter.
This deal, which will take our adjusted EPS above $2 on an annualized basis.
Expanse Nomad frozen foods leadership into eight new markets.
Notably, Croatia, Serbia, and Bosnia and Herzegovina.
It will also introduce us to a stream of new and complementary category.
Overall this acquisition will represent approximately 10% of our pro forma revenue base.
With an attractive growth profile and a meaningful opportunity for value creation.
We look forward to closing this acquisition in the third quarter and welcoming the team to the Nomad Foods Laguna organization.
We had a very active first quarter.
I'd like to spend a few minutes showcasing some of our most exciting commercial activations that began in Q1.
We'll continue throughout the year.
First is our new Captain campaign get on board.
This is a follow up to a successful captain reboot from 2018, where we modernized our brand item and leverage this asset across our European fish portfolio.
In Q1, we.
We further evolve this campaign by highlighting the freshness of our wildcard fish portfolio married with the convenience of frozen.
We also.
Your line experience.
Both they get onboard campaign in the traceability tool, we introduced in Q1 and will expand across our network. This year.
During Q1, we also announced a new strategic partnership with WWF to promote a common goal of driving more sustainable eating in agriculture.
This initiative will build on our existing sustainability efforts within our vegetable portfolio.
We will work together with our farmers policy makers in the commercial sector.
To drive foods proteins, EBIT, while reducing carbon emissions and supporting biodiversity.
In an effort to enhance biodiversity and reduce food waste we.
We will drive on pack communication across several markets.
And then towards consumers to make choices that will benefit them and the planet.
You see here, an example of how we will execute this initiative on pack.
Which is now live in Spain.
As a company we continue to make great strides along our sustainability agenda.
Just last week, we published our fourth annual eating for the planet report demonstrating progress across key sustainability commitments.
Amongst the highlight is our commitment to nutrition.
With 90% of our sales derived from the healthy choices.
These achievements was recognized by the Dow Jones sustainability index in 2020, when Nomad foods achieved a perfect score of 100% in health and nutrition for a second consecutive year.
In summary, we.
We are pleased with our fourth quarter performance and are off to a strong start in 2021.
We are on pace to achieve our full year guidance and have an exciting new acquisition, which along with underlying growth in our business in our base business.
We will help propel nomad foods, new heights in the post COVID-19 World.
I will now hand, it over to Sami to discuss our Q1 financials and full year full year outlook in more detail semi.
Thank you Stephane and thank you all for your participation on the call today.
Turning to slide seven I will provide more detail on our key first quarter operating metrics, beginning with revenues, which increased three 6% to 707 million euro driven by 1.8% organic revenue growth and a 3% of growth from the acquisition of <unk>.
As expected this was offset by a one 3% headwind relative to the anniversary of a leap year.
We are pleased to achieve organic revenue growth of one 8%, which comes on top of a seven seven increase during the first quarter of last year and represent nearly 10% growth on a two year basis.
Performance during the quarter was once again led by our branded retail business, which grew mid single digits.
This was offset by double digit declines in foodservice and private label, which represents approximately 10% of our revenues.
We achieved the 130 basis points of gross margin expansion during the quarter.
This was driven by a combination of product mix strong procurement execution and lower promotional activity.
Performance in our base business more than offsets 30 basis points of dilution, resulting from the inclusion of the Finland, Sweden, and the acquisition, whose growth margin have a lower starting point.
With that said, we expect to improve the growth margin profile of this business in the coming years as we apply the nomad playbook in Sweden.
Overall, our gross margin outlook remains unchanged. Despite a strong Q1 performance.
Specifically, we expect product mix and promotional levels to normalize in the coming quarters and inflation, while manageable to be higher in quarters, two through four versus what we expense in Q1.
Moving down to the rest of the P&L.
Adjusted operating expenses declined 2% year over year, reflecting a more normalized spend versus a relatively elevated Q1 last year.
Adjusted EBITDA increased 15% to 138 million and adjusted EPS increased 42% to 47 euro cents for the quarter, reflecting strong performance in the business and significant share repurchase activity. We have conducted over the past 12 months.
Turning to cash flow on slide eight we generated 98 million of adjusted free cash flow in the first quarter equating to 117% cash conversion.
Our commitment to best in class cash generation remains a top priority and we will look to build on last year's strong performance in 2021.
With that said there are a few unique factors this year that are worth highlighting.
We have taken strategic investment decisions to support future demand in our core categories, which will result in a higher capex commitment for this year.
These investments will fuel our ability to drive sustained organic revenue growth and market share expansion.
Additionally, we're looking to rebuild stock levels as a result of the unprecedented demand, thereby allowing us to support the seasonal demand expected at the end of 2021 and the start of 2022.
We remain committed to our long term, 100% free cash flow conversion objective and a thriving to come close to this target in 2021, despite the increased capital investments and the normalization of working capital.
With that let's turn to slide nine to review, our 2021 guidance, which is based on foreign exchange rates as of May 13, 2021.
Overall, we are pleased with our strong start of the year.
Which demonstrate our ability to achieve total and organic revenue growth, while meaningfully increasing our margins in a dynamic macro environment.
We have a strong commercial agenda in place for the remainder of 2021, which is aligned with our increased ability to supply. This should result in a positive market share inflection beginning this summer and support our top line objectives for the year.
Regarding inflation, a hot topic amongst FMC G companies, we continue to expect a low single digit increase in 2021 due to our active management of our cost inputs and have built a commercial plan accordingly.
With that said, we continue to monitor the macro environment, and we use all our levers, including price and productivity to navigate the dynamic landscape.
As I mentioned earlier, our gross margin expectations remain unchanged with the base business expected to be roughly flat versus 2020, and Finland, Sweden and to result in approximately 30 basis points of dilution due to the lower initial gross margins versus the base business.
Taking all these factors into consideration we are reiterating guidance for the full year of 2021, which does not yet include potential contribution from the pending acquisition of Falcon, Nevada frozen foods business.
We continue to expect adjusted EPS in a range of $1 50 to 155 euro per share, which equates to 11% to 15% growth versus the prior year.
That concludes our remarks I will now turn the session over to Q&A. Thank you operator back to you.
Thank you.
We will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request.
If you are using a speakerphone please pick up your handset before pressing any keys.
Your question. Please press Star then two we will pause for a moment as callers join the queue.
Okay.
Our first question comes from Andrew Lazard.
Barclays. Please go ahead.
Great. Thanks, very much for the question and Hello, Stefan and Sammy.
Andrew I.
I guess first off I was trying to get a better sense on the differential that you saw in the quarter between shipments and consumption just trying to get a sense of the sort of the magnitude that supply constraints kind of held back.
<unk> growth.
Okay.
So I'm not sure that the communication was was reading a report but understand that the question was really about the difference between the sell out in <unk>.
And selling so branded sell out was was mid single digit percentage. So that's that's what it is so yeah. As you know you'll have a lot of puts and takes between let's say the Nielsen the 50% of what you see out of our business and the final piece, but that's ultimately that's the bad debt the bottom line so branded business.
It is doing well and you remember on top of debt. We also have our core brands.
<unk> is slightly ahead of that so that's debt, but basically to move from from the Nielsen two.
Through the first part of the sell out you have <unk> you have to move to flat and then from flat you have to go to work to where you're selling which is as I said, which is mid single digits and then you're obviously, you're giving back a bit you know with the with our foodservice channel and the product label, which is being done.
Thank you for that and then you talked a little about expecting a share on market share inflection as you go into the later in the year and capacity comes online.
Can you give us a sense of how how market share has trended more recently as a result of the capacity constraints and I'm trying to get a sense of have others, whether it be private label or other branded players I would assume they would have had some similar supply constraints right given the elevated demand but.
If I guess if share has changed hands, a little bit have others been able to have more excess capacity than you did perhaps or werent run as effectively or as efficiently as you as you had been prior to the pandemic just trying to get a sense of how that how that trended.
But I'd say, it's an excellent question, Andrew and I think the first point to remember we mentioned that.
Labour producers were lower.
From you in a quarter more in the current pre.
Pre COVID-19 situation might be classified because in terms of the fixed fixed cost recovery. So it's a good situation to be but then obviously when when you're starting from 90% plus and you'll have to go through.
The COVID-19, you quickly go away beyond even sometimes 100% where the orders obviously you have a bigger cushion so yes, or what we understand is is that a big portion of this market share losses is really due to different sorts of capacity utilization between us and the other players and that's the kind of.
Things, obviously, we're dealing with right now we're taking some very tactical approach, which is moving you know increasing the shift the number six from the sometimes for five five to $6 sometimes.
From six to seven.
Days, which is which is big we also had acts in the way of access also to some co packing is a second piece and more fundamentally you know and given despite all the pluses and minuses.
Precision painting.
The differences, we believe that long term you know.
We're going after COVID-19, we are going to be from a loan from the higher base line and so that's why we've decided to commission a new line, which would be really are in the early Q4 in England, which is.
Which is great and we continuously considering these kind of function. So yes, we believe it's a it's a big part so that's why yes. This market share being taken by people that have a.
The lower capacity utilization enrolled in what we believe is market share market share is the wrong down 1% of the part of the over the past year, but that's obviously something lessons. We intend we have all the intense to redo recoup you know in the course of the year.
And I thought it was interesting your comment about building in some additional line, obviously capacity internally as opposed to simply.
Leveraging just co Packers, which obviously speaks to.
Your belief around retention sort of post pandemic and such I appreciate that one last one would just be.
Although we love, we love gross margin as well and we prefer to keep the gross margin for us as you know.
Yeah as long as obviously as long as you see the demand you know obviously it remains.
It's a reflection its not its not a full size, but it's a it's a theory.
It's a very it's a very articulated yes, we have yes, yes, and then very very quickly just last I guess, how much would your I'm trying to get a sense of your level of flexibility or conservatism. If you will for the year and how youre thinking about it I guess, how much of the full year guidance is dependent on you know capacity coming back.
Back at the in the timeframe that you anticipate I'm trying to get a sense of.
We obviously have to track capacity come online and I'm sure you have visibility to that but how much of the full year is is dependent on that versus potentially with more capacity potentially driving upside to the full year. Thank you.
Yeah, Andrew I think.
Overall as you know as we've said I mean, we were off to a good start in Q1 I mean the plan today.
I assume a return to full capacity to capacity available as of Q3 Q4, and this is our share plan has been built I mean at this stage. So if you think the guidance that we have is maintain still at 11% to 15% I mean as we can.
From an EPS standpoint, as we have as we have mentioned and the start that we the issues. We had in Q1 should be gradually fading away as we get into Q3 net Stefan was mentioning with the buildup of the line starting in Q4, there is going to start to help the end of the year and again going into 2022.
Thank you.
Our next question comes from Andrew Olson of UBS. Please go ahead.
Hey, good morning, guys.
Yes, Walgreen's you know, we demonstrated very good pricing power and the ability to dry pricing whoever it was necessary.
Peace, which I'd like to really insist.
And there's a number of areas that we are really exploring and looking at as we've done in the past and we're now we're liberating the gaming the context, we are facing with very clearly we have the plans in place to end of the year on the strong momentum and the pricing price in there to stay.
On the on the margin I think I think we come and see them in on the on that on the only point I wanted to highlight to you was that Bush will probably take you through more detail as you as you guys. We get into the modeling later on but the growth Marvin outlook has not changed I think the information will be low single digit as we had mentioned this is going to be offset by for the.
TVT, we read execute the pricing plan as we have planned for in the category that impacted by inflation as we had mentioned and the overall if you want we are not changing our plans for the year and we are despite the fact that you have the group a good start because simply we're going to see some other effect in the rest of it that are going to get us to the guidance that we have we have laid out so the increasing.
See that Switzerland affect you will negatively impact our margin developments, but that's not changing the guidance that we get any.
Understood. Okay. Thanks, so much for the cars that's great. Thanks I'll pass on.
Okay.
Our next question comes from Robert Moscow of Credit Suisse. Please go ahead.
Hi, you might have answered this but I.
I was surprised at the inflation guidance hasn't moved higher.
It's loaded begin where it's at low single digit.
Is that or just a reflection of hedges you have in place contracting.
Spot rates for just about everything are up here in the U S.
Do you expect a materially higher degree of inflation in 2022 I guess.
East on where things are headed.
Yeah, I think the one that I would like to a community shrinking slowly from now can standpoint, I mean, the inflation that we had planned toys was materializing and we came into the year. We the manageable view of it we have pricing Brandon with productivity as I mentioned, the one element that has been happening in Q1.
That that is helping US is the fact that the procurement team our procurement team has done an absolutely exceptional job at buying out if you're on the input material and which has helped in Q1 and going into the rest of the year as well. So we are seeing inflation.
The month by month or year over year, how those are looking good that that'll be appreciate it. Thank you.
Well.
When you do a day euro.
Q1 that you have some great stuff as we as we had mentioned and the full month, let sales do you have now complete we are increasingly continue it'd be easy to see the full your plan I would say overall so the trend continues to be stronger and the planning orange change versus what we had mentioned earlier on.
On the 21 and the three.
<unk>, that's important I think to keep in mind overall is that.
We need to look at things as well on the two year basis. Many companies have done that but I think it's a good perspective to highlight and the fact that in a two yo the two year growth for US was about 10% I think for the year and that's what we did in queue on and that's <unk> what are we going to be after I mean for the rest of the year.
Okay, great. Thank you and just on the Capex side I know you said you've increased your expectation for investment into the UK.
How much capacity does that actually after your number one and number two is that enough to.
To accommodate the expected demand levels, you're seeing across your business day are the other places where you need to extend or a navy can you spread out the the increased volume across I guess the day recently acquired assets you you've purchased.
When when agenda is you know, it's it's a never ending process.
Continue to sleep.
Re assessing especially in these very volatile situations I mean, we we trying to find out exactly what you know what the the demand is going to be plus COVID-19.
We're feeling sufficiently comfortable with these additional line.
Which I think should bring something like seven.
7000 tons of of finished goods, which is which is good.
But obviously, we're not we're not limited to this.
Although we had all the.
All the all the other elements that we could play with as we said last you know we have we have first we have a net.
Let's work of different plants and.
And different fishing lines that we've you know we've been able to maximize that's one thing and second also we playing with the with the shifts. So all in you know we have different different elements to play with and I saw at this stage, we feeling comfortable.
Got it and then maybe just when you get the capacity online is there a gross margin benefit because if you're running hot now and using maybe outsource co packing.
That maybe it's not as efficient as as you'd like it. The day is there a benefit to get into this online and then pulling some some manufacturing in house.
Absolutely [laughter], absolutely that's very clear so it's a it's a good day. This line is a good feedback and and I can tell you. It's it's physically painful to see all these good schools gross profit going to some of the places so we'll be very pleased number.
One four customers for consumers, but also for ourselves.
Great. Thank you very much guy.
Okay great.
Once again, if you have a question please press star one.
Our next question comes from Rob Dickerson Jeffries. Please go ahead.
Hi, Good morning. This is all she's on for Rob Thanks for the question.
Just wanted to non walk around it inflation, you mentioned Ah Los angles that inflation for the yet can you give us some more color on where you're seeing cost pressure then cost relief with respect inputs.
Yeah, we mentioned that the the level of inflation was going to be normal in 2021.
Net of effects, we had mentioned effective you as well that the procurement team has done an exceptional robbing Q1 in managing very well I mean inflation situation in your system.
Deflation.
And the effects as well it wasn't upset them into the overall pool of costs to that too.
So I would go for the year remained.
Mmm change versus what you have communicated earlier.
Garden trained in the quarter and how should we think about it for the remainder of the year.
We're investing behind the brands behind innovation behind frankly, the equity as well we talked about the captain copy we talked about effectively kept iniquity of renewal.
And you can see to support operands very clearly so they're comparable to last years, they've all and we are trying to support in the disproportionate way any kind of innovation that is driving meaningful value.
Got it thank you I'll pass it on.
This concludes the question and answer session I would like to turn the conference back over to Nomad C E O Stefan Dash maker for any closing remarks.
Thank you for your participation today when we presented is Kathleen February we made a Kansas Nomad foods is it a different type of foods company.
Oh first quarter results demonstrate the powerful value creation playbook with strong organic growth and capital on vacation driving a 42% increase you know existed the earnings per share.
Looking at all possible.
For your frozen foods brand is uniquely positioning opposed to beat world.
While the acquisition of 40, Nova has us we're on pace to achieve a long term growth goal of deposits EPS growth, you're in and you're out.
I Hope you and your loved ones remain sales December.
And we look forward to updating you on progress when we report next in August.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
[music].
[noise] [noise].
[noise].
Yeah.
[music].
Yeah.
Oh.
[music].
Uh-huh.
Uh-huh.