Q4 2021 Nomad Foods Ltd Earnings Call
Greetings and welcome to Nomad foods fourth quarter and full year 2021 earnings call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded it is now my pleasure to introduce your host Mr. Murphy Group Finance director. Thank you you may begin Hello, and welcome to the Nomad Foods fourth quarter 2021 earnings call.
I'm Seamus Murphy group Finance director and I'm joined on the call by our CEO Stefan <unk>, our CFO . So that means you can.
Sure.
Before we begin I would like to draw your attention to the disclaimer on slide two of our presentation.
This conference call May include forward looking statements that are based on our view of the company's prospects expectations and intentions at this time.
Actual results may differ due to risks and uncertainties, which are disclosed in our press release and filings with the SEC and this slide in our Investor presentation, which includes cautionary language.
We will also discuss discuss non <unk> financial.
Financial measures during the call today.
<unk> financial measures should not be reconsidered, a replacement for and should be read together with Orion for us results.
Users can find the Oi for rest of the non <unk> reconciliations within our earnings release and in the.
The appendix days at the end of the slide presentation available on our website.
Please note that certain financial information within this presentation represents adjusted figures for 2000 22021.
All adjusted figures have been adjusted for exceptional items acquisition related share based payments.
A related expenses as well as noncash FX gains or losses.
Otherwise noted all comments from hereon will refer to those adjusted numbers.
With that I'll hand over to Stefan.
Thank you Mr <unk>.
Thank you all for joining us on the call today.
We are pleased to report our results for the fourth quarter and full year 2021 in line with the high end of whole prior guidance range and marking our fifth consecutive year of growth.
On the revenue.
Adjusted EBITDA.
And adjusted EPS.
He says I agree achievement for the team overcoming the series of macro challenges throughout the year.
Reinforcing the resilience of our business model.
And the strength of our brands in.
In the face of a volatile market backdrop.
We prioritized or attention to areas of the business, where we could have the most control.
But typically we sharpen our consumer proposition, while strengthening our supply chain.
Through process improvements and targeted investments. We also took you both easy to materially lower our cost of capital.
Our successful debt refinancing.
It was concurrent.
The acquisition and integration of two significant acquisitions with.
<unk> continued the development of both brands portfolio and explain to the European footprint.
The high growth.
Each region.
With that I'd.
Like to recap, our 2021 key financial metrics.
Beginning with reported revenues of $2 6 billion Euro.
Which increased by three 6% compared to 2020.
And 6% on a two year basis.
40 year organic revenues were in line with our guidance and declined two 1% as we compare against strong 2020 results and that'd be gated the volatile markets through 'twenty 'twenty. One importantly, it's worth noting on a two year basis organic revenues increased three 2% as we consume.
The days of the old consumer wins fronts with the 'twenty, we delivered a robust adjusted gross margin was 28, 9%.
Which was 140 basis points lower year on year, reflecting the impact of acquisitions as well as raw material and utilities inflation towards the second half of the year and the normalizing of promotional activity.
EBITDA of 487 million Euro represents 4% growth comp.
Two last year, and a 6% CAGR compared to 2019 on a two year basis.
And finally adjust.
Adjusted EPS was 155 zero cents per share.
Representing 15% growth versus last year.
To hear a cadre of 12%.
This performance, which included a fourth quarter seasonal loss from 14 O Vas Prudence would be there so far approximately four cents.
Is in line with the top end of our full year guidance.
After an exceptionally strong year for frozen food demand in 2021 .
We saw greater volatility in 2021 as Europe , reopens and consumer demand began to normalize in some cases faster than the other parts of the world.
However.
Why is the European frozen foods categories declined modestly during 2021 .
We believe our continuing solid performance is evidence of the longer term shift of consumers eating occasions today ohms and the greater share of frozen foods within that consumption.
At the same time, we continue to invest in our brands as we optimize our E&P strategy to maximize impact with our consumers and developed a growth engine in green cuisine.
Especially if correctly on green cuisine, we are pleased with our continued growth in the meat and Peach segments, which has seen that business grow by 31% during 2021.
This growth is driven by product and technology innovations with the launch of chicken less burgers and grills.
Well as Vishal said in active.
Fish fingers, we continue to expect this segment to be a driver of dynamic growth in the years ahead.
I am proud of the whole supply chain has adapted to a radically different environment since 2019.
Navigating exceptionally growth in demand in 'twenty, 'twenty, and what you think inflation pressure seen as opposed to Apple send it what you want.
Focusing on continue to have supply we have rights figured process to optimize our manufacturing and logistic network.
While undertaking several capital projects.
To ensure excellent service levels, despite the volatile microbot.
Even in this environment or a strong business model de Levered free cash flow through 232 million euro for the year after a higher capital investments in capacity expansion and cost reduction project.
This was driven by a solid EBITDA performance and disciplined working capital management.
Within this number we increase our capital investment by 20 million Euro to 79 million euro or 3% of revenue.
As we invest in capacity expansion and cost reduction projects.
We expect the all in all underlying free cash flow to grow as we continue to expand our business.
Conversion conversion returns to its long term, 90% to 100% average.
Our strong operational performance in 2021 was augmented with a number of capital allocation actions.
We successfully completed two acquisitions during the year with a total announced purchase price of 725 million Euro, Finland, Switzerland, which we acquired at the start of the year for 110 million Euro.
Completed the consolidation of the Finnish run in Europe .
Our integration program is largely complete and the business is performing well.
In September we completed the acquisition of 14 robust frozen food business, which expanded our geographic footprint into several new markets in central and eastern Europe through the leading brands ledo and seek them.
I have no one to be this for nearly five months and we are pleased with what we have seen.
The brands have leading market share positioning.
Our teams are working hard to enhance even further by leveraging the commercial landscape capabilities of Nomad foods.
In 2022, we plan to invest significantly in the business with targeted E&P increases and growth focused investments.
We are confident of delivering those stated synergy targets of 15 million by the end of 'twenty 'twenty four for the Nova frozen food business represents our first acquisition since the creation of Nomad foods in 2015.
And it shares many of the same characteristics as the data that preceded it.
I couldn't Brian's with number one market share.
Strong consumer awareness and attractive free cash flow why.
Why are we excited to integrate supposed to nowhere in the coming quarters, we have Jupiter and capacity to continue the consolidation of frozen food across Europe or M&A pipeline is active.
And we look forward to updating you with progress when we have news to share.
2021 we announced a $500 million buyback program expiring in August 2020, full today as we have repurchased four 2 million shares for a total value of 94 million Euro.
And we continue to regard opportunistic repurchases as a highly accretive options to drive shareholder value.
Turning to slide five we are pleased to share a number of the sustainability mind students that we achieved in 2021.
As Europe's leading frozen food company and a major purchase of fish in the agricultural produce.
We are committed to playing our part in transforming the food system to protect natural resources.
And tackle climate change despite significant challenges across the whole supply chain in 'twenty 'twenty. One we have continued to raise the bar and I would like to provide you with a few with a few examples in 2020 . One we joined the United Nations race to zero and announced plans to significantly reduce our greenhouse.
Gas emissions.
We are also partnering with the World Wildlife Fund.
To further enhance our work on sustainable agriculture.
During 2021 we achieved 100% renewable electricity in all of the factories with no base business.
Which reflects the medium term duration of our energy strategy.
Recognition of our progress on sustainability over number one is we were also delighted to be included in the Dow Jones sustainability in Europe Index for the first time, we were ranked as one of the top four companies in Europe within the food products industry.
With a sort of one of her skull and health and wellbeing.
Turning to slide six.
I believe it's important to look at our results in 2021 .
In context of what we have achieved since the creation of this business in 2015.
Following the series of early acquisitions, which consolidated much of the birdseye ignoring finish operations across Europe .
We have continued to grow all sales from $1 9 billion Euro to 2.6 billion with a run rate into 2022 of two 9 billion Euro <unk>.
Including the 14 of our business.
Adjusted EBITDA has increased by over 50% to 487 million Euro.
In the adjusted EPS has increased by 85%.
At an average annual rate of 13% to a 2021 reported 155 euro per share.
I will discuss our 'twenty two guidance later, but.
But I'm confident that our business is well positioned to repeat this pattern of growth and discouraged here and over the medium and longer term.
Posted by our excellent team across Europe .
Our strong brand portfolio and consumer proposition.
And our proven track record to deploy capital in the optimal way.
To drive value for shareholders.
With that I will now hand, the call over to Sami to review, our financial results and guidance 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 fourth quarter operating metrics. We reported revenues of 704 million euro in the fourth quarter with growth of 7% year on year driven.
<unk> by the acquisitions of Kinder, Switzerland, and default in of our frozen food business. As a reminder, the phenom three <unk> business was acquired at the start of 2021, while Q4 represented our first quarter of ownership of the fourth pillar of our business the old M&A fourth quarter revenues also benefited.
Percentage points from favorable foreign exchange translation.
Zoe set by a four 5% decline inorganic revenues as we anniversaried elevated consumption, resulting from lockdown across Europe in the prior year period full year revenues increased by three 6% year on year. Within this result organic sales declined two 1%.
They can go low single digit decline in the frozen food category.
Still reflecting strong growth on a two year basis, the pre pandemic levels.
Against this backdrop, our market share for the Euro was down 20 basis points.
However, the momentum in our business through half two and into 2022 has been positive with solid market share growth since may 2021, as we recovered our positions following out of stocks and supply constraints. During the first four months of the year.
Gross margins were 26, 5% during the fourth quarter, reflecting a 500 basis points decline compared to the prior year and in line with our expectations. This was composed of a 350 basis point decline in our base business as inflationary pressures impacting the business during the.
Quarter, while mitigating pricing follows that the lag with price increase is expected to be implemented through 2022. The remaining 150 basis points contraction was driven by the inclusion of the <unk>, Switzerland and faulting of acquisitions with gross margins are seasonally lower at this time of the year.
The base business gross margin decline was driven by the anniversary of strong volumes in the prior year increased promotional activity channel mix and cost of goods inflation on a full year basis gross margin declined 140 basis points with M&A mix driving roughly half of the contraction.
Moving down to the rest of the P&L fourth quarter adjusted operating expenses declined 9% year over year and compares against a 15% increase in the prior year. This year's decline reflects a more normalized level of A&P spend as we anniversaried the incremental 10 million Euro <unk>.
Vestment last year behind brand building and consumer retention efforts both quarter adjusted EBITDA of 113 million Euro was down 5% versus the prior year and adjusted EPS of <unk> 33 Euro cents reflect a 13% decline as a result of the items discussed.
Turning to cash flow on slide eight we generated 232 million of adjusted free cash flow in 2021, representing a conversion rate of 84% as we have communicated. This outcome was mainly impacted by working capital outflow as a result of our need to rebuild inventory.
2021, and the anniversary of deep priced working capital levels in the prior year. Furthermore, we increased capital investment by 20 million Euro year on year to drive investments in capacity expansion and cost takeout.
Based on a two year basis, 2021, and 2020, our free cash flow conversion was in excess of our 90% to 100% target turning to slide nine our strong free cash flows underpin our long term capital allocation strategy and we have been consistently generating cash and since our formation.
Delivering $1 55 billion euro in the six years since 2016.
Looking forward as we continue to strengthen our brand portfolio and operational footprint, we fully expect to drive conversion at the 90% to 100% level over the medium term.
During the year, we took the opportunity to significantly amend and extend our capital structure with the refinancing of almost 1 billion euro of debt inclusive of our revolving credit facility and issuance of 400 million Euro in new senior secured note to partially fund the acquisition of the fault in about frozen.
With business at the end of September .
Year end, our average debt maturity was four nine years with a reduced year on year average debt cost of two 3% we remain committed to our three to four times net debt to EBIDTA target as we believe this is the optimal balance for our business to drive accretive growth over the long term as.
As we have previously highlighted we are investing in our business with capital investments of 3% to 4% of sales in 2021 and 2022 as we target specific Harrington project finally.
We will continue to deploy capital in an accurate way to drive growth where appropriate.
As Stefan mentioned earlier, we maintain an active M&A pipeline of targets within our core capability set to expand our footprint and maximize synergy potential balancing this with regards buybacks.
Sensible alternative to drive value for our shareholders.
Particularly given our consistent and on track progression towards our long term operational and financial objectives.
Outlined at our Investor Day in November 2020.
With that let's turn to our final slide Slide 10 to review, our 2022 guidance, which we are initiating today and is based on our latest economic outlook and foreign exchange rates as of February 17th 2022, starting with the top line, we expect to return to solid organic revenue growth in the low.
Single digit range for the year.
This is a balanced outcome of faith price increases through the first and second halves of the year and a willingness to lose some volumes across our markets as we push for maximum cost recovery, we expect our newly acquired Adriatico business continued its recovery during 2022.
It's incremental contribution to revenues during the first nine months of the year supports our reported revenue guidance of high single digits for the full year 2020 to adjust.
Adjusted EBITDA is expected to grow by high single digits due to the performance in our base business cost controls and the inclusion of the 14 of acquisition all in we expect adjusted EPS in the range of $1 71, and $1 75 euro per share.
Representing another year of double digit growth at the midpoint like many businesses. We are currently experiencing high levels of inflation, which we plan to recover in a number of pricing waves throughout the year. As a result, we expect an improving gross margin profile over the course of 2022 as we recover.
Cost input pressures in two phases through the first and second half of the year.
Implementing this we expect the favorable mix from 14 Navarre to provide a tailwind to margin driven by the performance in the high seasons of quarter, two and three where ice cream sales are strong based on the sequence of gross margin evolution. The seasonal loss from 14, Nova during Q1 and relatively difficult.
In comparison during the first three months of the year, we expect sequentially improving financial performance throughout the course of the year for cash flow. We are confident we will deliver strong free cash flows in 2022.
However, we expect the combination of a higher capital investment and the implementation of the use unfair trading practices Directv across the countries in which we operate to present, some headwinds to our 90% to 100% medium term conversion in 2022, specifically the adoption timeline of the EU directive.
It's not consistent across all markets and therefore, we are currently working to both evaluate and mitigate this in a sustainable way we will give further detail on this at the end of the first quarter.
That concludes our remarks I will now turn the session over to Q&A. Thank you operator back to you.
Okay.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session.
If you'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
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Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your question great.
Great. Thanks very much.
A couple of questions here, maybe to start with.
With pricing as you've discussed with pricing not yet fully phased in.
A tough topline comp with last year and the seasonality of Fortinet over that you talked about it sounds like the shape of <unk>.
First quarter sort of profitability could still be under some pressure sort of like what you saw in the fourth quarter I know in the fourth quarter EPS was down 14% or so year over year I'm, just trying to get a sense of the magnitude.
Of what we should think about in terms of a.
Year over year change in earnings.
And then again regarding still in the first quarter regarding organic sales.
I know that it's still a pretty tough comp as you are still not fully lapped the locked down from last year would you expect any sequential improvement in the year over year decline in organic sales from what you saw in <unk> to <unk>.
And then I will just kind of follow up.
Okay. Thank you very much Andrew So let me start with obviously the full year results in the quarter results.
Let me start with you know what we're coming up with in terms of the guidance, which is double digit EPS growth and obviously revenue growth.
So that's the full picture for the for the for the full year, but to your point this year will be very different quarter by quarter.
I think your points are right.
First quarter, we still had last year covet.
This year, we have two lumpy spot interesting to see by the way that we are gaining market share in the meantime, which is something we've been doing over the last 10.
10 months, so with that so that's an interesting piece to your point yes.
There is always some sort of time lag between let's say Cogs in price that is the nature of the different countries. We are we have some countries that.
Structurally the negotiation happening faster some opening obviously at a different pace and this year. We also when we go through potentially several waves of price increase which is going to be with you you know obviously.
The quarter by quarter comparison, a bit more a bit more difficult and the last piece to your point absolutely right.
Q4, Q1 structurally these out of the let's say the lowest.
Let's say quarters just for simple reason is the very strong you know ashwin business by definition is obviously, there's a bit less in the winter and early spring, but I can tell you on when we see obviously Q2 Q3. We are we are very pleased so we are not going to obviously come up with the details of each quarter, but.
I think directionally. It is true that this is going to be a different a different story, though your point about the second question about the sales, yes, I think what you see exactly to your point.
You know tough comps in the first quarter.
We should see obviously this ramping up over time, but again I think we're also planning to increase market share in the on the on a full year basis. So that's a bit you know what.
What we can see what we can see this year, which is going to be which is volatile by nature.
It's a it's a different perspective compared to what we had.
Definitely after six years of growth we have all the intensive grew again in the in 2022.
Okay. Thanks, and then you talked about.
We've heard a lot about grocery sales in general and you're talking about the frozen food category as well.
Has been running down kind of low single digits, just given the mix.
Extreme nature of the lockdown in many countries in Europe last year versus our reopened environment. These days and you still have some of that.
Before you fully lap that.
Have you seen I guess any changes more recently and the overall frozen food category performance at retail that.
Lead you to believe that once you've kind of fully lap some of those more significant lockdowns last year that that the category itself can sort of more quickly returned to sort of modest growth and I would think would be sort of underpinning your.
Your expectation around low single digit organic sales growth for the year.
I think you're absolutely right when you take a bit of a distance Andrew.
What we can see is on the cargo basis, two year basis, we can pay obviously 'twenty 'twenty 2019, and 2022 and 2021 two years, what we've seen is a character of around three 3%.
Which is definitely higher than what we had in the past with the category.
Another way to look at it is also we have this four or five top markets, but I don't see any reason why it wouldn't apply for all the markets the number of consumers going to two.
Two frozen and so we also have seen something like 2019, we had we were close to a bit lower than 42 million.
People.
Consumers at 41, 7% to be precise and in the meantime, we've seen a number of consumers growing by something like close to 5%.
She is definitely very encouraging.
When you think about it.
Well I think people will start.
This is again you know the frozen food.
What the states that they like it.
And they also and I think it is only the beginning.
Well I definitely believe that they see for example waste is a big component.
It's going to be it's going to grow in the future and nothing can can can be definitely yoga veto frozen fruit from that standpoint, so I think that health and sustainability.
One tailwind for us.
To help us in the future, so well housings to Mexico alive at what pace, we don't know yet, but definitely this hour. So some key themes. We will we will emphasize in the future. Okay. Thank you.
Our next question comes from the line of Jason English with Goldman Sachs. Please proceed with your question.
Hey, good morning folks are RJ. Good afternoon, I think it maybe afternoon for you.
Yeah question on price I know, there's a lot of noise in the prior year base, sometimes it's easier to look at things on a two year stack basis.
We do that.
We have inflation escalating every quarter, but at the same time, you've got price slippage.
Slipping over second.
Second consecutive quarter that your year on year price on one or two year stack basis is eroded and it is now negative.
What's driving that negativity, what's driving the erosion and what does that foreshadow in terms of the pace and magnitude of price increase you're going to get as we roll into next year to offset some of this inflationary pressure.
Well I think I think when you see Q4, I think you have to take into account. The fact that in Q4 the year before we were totally under promoted for obvious reasons and so that's the main reason why you have obviously that the difference in Q4 I can only tell you that definitely I mean the the.
The intent is to price I got into Cogs.
As we know in Europe is going to be staggered.
That's you know that's how we want to take a minute to exit the year and to prepare ourselves for the coming years. So you know quite frankly last year. There was also a is very very low Cogs as you know.
And we've seen that with India, I think extremely efficient from that standpoint with Zen is materializing also in terms of in terms of price.
I think we're also well equipped competitive private label, which also helps us in the in terms of a potential recession.
But at the same time right now is.
Clearly you know according to Clarksons, obviously with pricing.
Just sticking with more timing hand, there as you know, but that's our that's the way it's working country by country.
While I'm on the topic of timing.
Your comments on potentially multiple rounds was a bit surprising in a good way to me and I suppose I've always viewed continental Europe as a one shot on goal per year type market, where you can negotiate started here and that's it you're kind of locked in.
Wait for next year, so whether it's coming from multiple rounds really more referring to UK, where you have more flexibility or are you seeing more flexibility in your continental European markets as well.
There is very very simple jayson.
The World has changed it is changing.
And so we are changing and the orders we say it will be changing that's it.
Alright, Thanks, a lot I'll pass it on.
Yeah.
Our next question comes from the line of Robert Moskow with Credit Suisse. Please proceed with your question.
Hi, Thanks.
Wanted to make sure I'm doing the math right.
Fortunate over in 2022.
I'm getting at least an 8% contribution.
Based on the original 270 million Euro forecast.
So if that's the case.
Your guidance for 2022 is high single digit theres not a lot of wiggle room, there for organic growth being positive.
Doing the math right or is your definition of organic growth just and just very very modest.
Well on the on that overtime.
<unk>.
Overall, let's say, what we remained on the fact that our earnings.
Our EPS are going to be double digit in the attractive from that standpoint, if you want to be the revenue pattern that we have we are clearly seeking for growth in 2022.
First innovate scale your vector is contributing to that no doubt, but as you know I mean, we are we have a history of integrating our newly acquired business and driving out senior leaders fast as we can I mean from the perspective, we have provided some perspective on the fact that 14 of our wasn't going to be a key contributor to the business. So overall, we don't provide that.
I mean necessary a breakdown across the business that we have acquired about buyback category either but overall if you want the commitment is that the combination of both the existing base business and 14, Nova is to drive double digit EPS growth overall, and we fall into actually being a key vector to that but.
Organic FX continuing to be an area, where we continue to invest and grow well one more thing.
Yes, I would put it that way from the start our model has always been based on the combination of organic growth M&A and M&A and so that's exactly what's happening right now.
I'd like to get a little more specifics if I could.
Is there anything that you find you have had to do with 14, Nova to rationalize Skus, maybe shrink the business to grow first on top line.
Given given the numbers that you're providing there I think you need to give us a little more detail on on what is happening with that business.
While the business is not changing I would put it that way I think after five five months and then the only thing. We can see is we can only confirm what we've seen from the stock.
Which is you know great business great brands.
It requires a bit of reinvestment as menu, especially in terms of freezers for example route to market that's exactly what we the way we increasingly with also the E&P.
And that's what we're doing at this stage. We also by the way very much in line with our with our model must win battles. We are defining what the must win battles are so we are focusing even further the investment behind the key categories.
Which unsurprisingly, we also by the way in both for example in ice cream take home and also some other one or two other frozen food with very much in line with the rest of the business people like it by the way the largest focus.
There is nothing changed compared to what we said we would do quite the contrary.
Robert.
The compliment the particular without it.
Two a two carat completing the picture is that we're clearly gearing up.
Very fast I mean, the synergy agenda as well.
Overall.
Carsten on top line revenue as well I mean, very consistent with what we have talked to.
Inova announcement, but the 50 I would refer back to our ambition and good fit elsewhere, and then industry doing where we have a very good historical track record of integrating well and driving synergies our Kentucky. That's what makes Q3 very strong on the M&A side to complement the organic side as well and this one is just a bit bigger.
Okay. So there's no there's no change in terms of your sales expectations for port Nova It sounds like.
And just to follow up on Jason English is question about pricing waves.
Does that imply also more than what you expect to take more than one price increase in a given country. During the course of the year because in the U S.
It's more like well you raise the pricing as you need to.
And then if you need more pricing and take another pricing ground. This one sounded at least the way you're describing it as you already know theres going to be more than one.
In a given country in a given year.
Is that fair.
So to your point, you know countries with different inflation level a bit different country by country.
That's where yes, we are.
All incentives to raise price more than once.
But at the end of the day also partly in line with what the U S.
The U S players are doing which is on the underneath basis, so nothing nothing really different otherwise.
Otherwise to your point.
We just this idea of having a time lag between.
Cogs in price.
It is not the kind of things we want so that's very much in line with what the U S.
Players are doing.
Okay and last question you said you were willing to cede some volume actually raised price, but you're also saying that you expect to gain market share can.
Can you help us reconcile those two things can you can you do both at the same time.
Yeah, we already had one by the way.
No. We I think we were right.
But yes.
Yes, I think its important well, but if initiative, but it's never easy to do both at the same time. So that's our job obviously to maneuver around this.
What's important in terms of in terms of shareholder value is to make sure. They have the cash flow of the future I'm not going to be let's say damaged.
And so what's important for us is to make sure that on the on the let's say long term the gross margins.
And if it means that we may have some bumps in the road well that's life and.
And we believe as.
As management and our shareholders by the way.
But it is the right thing to do on a long term basis still at the same time, yes.
We're still intending to to to gain market share.
We've been doing this for the last 10 months.
And so that's that's what we want to do what we want to achieve.
We don't want to have fully.
What do you what are you defining a dislocation or what the negotiation. So you have new Kelly you'll have to get really choose these things.
But yes, that's the that's what's happening with when inflation is a bit higher but that's normal.
Okay I appreciate it.
As a reminder, star one to ask a question. Our next question comes from the line of John Baumgartner with Mizuho. Please proceed with your question.
Good morning, Thanks for the question.
First off Stefan you know theres been a lot of focus during the Covid era on volume given the swings of consumption in home and out of the home and you mentioned the growth in new consumers. This morning, but I'd like to focus on product mix, you know to the extent that new households have come into the category since 2020 and frozen you've been increasing your offerings of single serve meals entre.
<unk>, even independent of Green cuisine, I'm curious what are you seeing in terms of demand for those premium products and then given the changing consumption trends is it reasonable to think that mix can contribute a larger portion to organic revenue growth in the future on a sustainable basis relative to pre COVID-19 .
Well.
Let me start with Green cuisine Green cuisine as part of a new category. We believe that long term is going to be you know fantastic convenience, which is growing very nicely. We agree we're gaining market share in this category, which is growing which is nice and to your point, we've seen a lot of these these consumers testing.
Our products and what they've seen is that it is something which is a great quality. So that therefore for green cuisine, which by the way it generates a very nice gross margin. That's also important to notice for the rest I would put it that way John I think we remain true.
Two were all must win battle concept, but which is very much in line with what we said, which is we are focusing on the categories country by country.
We have the highest market share the highest growth potential and the highest gross margin.
To your point I think there is a remarkable let's say convergence with what you said, but from our standpoint, we have not changed our game from that from that standpoint, we're just have adopted it and obviously, we're also capitalizing on E Commerce, which as you know as is good for frozen food.
And it's very good for brands like us like over.
Okay, and then on the operational side Fannie.
No Matt launch this companywide transformation optimization program in 2020, I think you've made some you know some good changes to the supply chain. Since then as well, but can you highlight any specific accomplishments in that program during 2021 and what can we expect in terms of your milestones are focus areas for 2022.
And in terms of optimization. Thank you.
Sure.
That's what I mean, so just to set the record writer, which are the program was really an initiative in 2021.
And it covers a number of areas. If you will to transformation that are aimed at maximizing revenue growth and accelerating them and.
Well if short optimizing our cost structure is very stated we are completed.
Let's say the task of putting together the appropriate team our team to work effectively on the key building blocks that are going to drive us on both sides of the revenue and cost optimization, you really hear more if you want in this year, but that is very clearly completing.
Design phase as we speak therefore is to move the start of the implementation phase in the second half of it so it's a big program.
As you know and we've been talking about it and it's a multiyear program. So probably that benefit will start to probably kick off if you look more towards 2023 onwards, as opposed to 2022, where we will be effectively implementing the different parts of the program.
Okay. Thanks for your time.
Thank you John .
Our next question comes from the line of Jon <unk> with CJS Securities. Please proceed with your question.
Hi, Good morning, Thank you for taking my questions.
Not to beat it to death, but I was just wondering if you could expand a little bit more on the pricing commentary and the multiple increases. This year are you seeing parity now with the U S model just in terms of Europe .
We didn't raise prices closer to real time or is this still a way to go before you reach that point with maybe a big.
A big piece of your business, that's still staying on an annual model.
Yeah John .
The reality, though is to condition the market conditions are changing okay. I think historically Europe has been operating in particular in our segment and put us in a lot of other staples businesses under a fairly low single I mean level of inflation and so usually if you once you got into a regular pattern as you are very familiar.
Which is inflation that negotiation promotion plan alignment to get to an aligned view that would effectively preserve margin contributing to optimize growth and hopefully show the gain share the copaxone dramatically changed now as you know and what we're seeing is if inflation that is pushing us only but everyone. So there is effects.
They are the condition at this stages, whereby we either go we have very high inflation and have to spend a year or two correct or effectively try to capture the pricing in a way that's probably more conducive to the reality of inflation. So we are starting the process.
This is something that is not just only concern he goes but many other.
Operator, if you are in the array of FMC and don't forget that within pricing this pricing per se, but there is a number of other components that are important to optimize such as promotion as you know with the chart price pack architecture as well such as trade terms. So the whole idea is to use all of the vector. That's what has made us very strongly in developing our revenue.
Management strategy, but rather than doing in one go in the year trying to spread it in a way that effectively Suffolk downs implementation and enable the retailer to really be with us as we reflect the appropriate level of inflation into our pricing.
Okay, great. Thank you for that and then second I was wondering if you could talk about the phasing of promotional spending this year and if theres any specific lumpiness that you're expecting.
Any concentration maybe I'm green cuisine or a separate program I think you mentioned that acquisitions will get some concentration in this year.
Just help us understand how that will walk through the quarters as you expected today.
On the promotion of the things that the one message you're hearing is if we wanted to grow the business and you know this is a market where promotions are absolutely critical and and we had situations because of supply issue, particularly in the past whereby a promotion or ramp up issue has not been up to what we would like to see CP, because we didn't have them.
Good.
In liquidity, we won't see that now we're getting to a point where.
Vast majority of the supply issues, if you put behind US we're able to promote the business and so therefore, you would see probably a more steady pattern of our promotional activity across the year and leveraging as well as the seasonality of the product on both sides of the portfolio, which is a very key debate business. When we went in and 14 about which would go business, which will go through different promotional cycle, but the intent is to.
Clearly drive competitiveness in promotion beat if you want on the Isle being on and of our displays on features in order for us to continue to attract consumers in our category in our business.
Okay, great. Thank you very much.
As a reminder, it is star one to ask a question.
We have a follow up from the line of John Kernan with Tang. Please proceed with your question.
Hey, Thank you for the follow up I was wondering within your EPS guidance for the year.
Are there any planned repurchases or other assumptions around capital deployment or allocation just included in that and if so what are they.
Yes.
I mean, we have a we have aligned on a 500 million authorization, we have realized out of the 500 million 94 in 10 94 million in Q4, we continued to lag to look at the buyback as an opportunity for us to beef up our performance from an EPS standpoint.
And we are always going to assess if you on the buyback versus other form of capital allocation optimization. There. So we will provide you a number per se, but clearly the intent is to continue the program and we have this authorization form to make good use of it at the time effectively we judge is the right moment, there, but we have <unk> in place we've already started and we intend to continue.
New at this very stage the objective is to contribute to driving double digit EPS growth and drive the best return possible for the shareholders.
Okay, great. So just to be clear there is some component of that that's included in guidance.
Not to say that.
I would have told you.
I've just told you that we are confused.
Yeah.
In a very regular way in order for us to clearly contribute to the delivery of the gold and looking at all possibilities within our capital allocation strategy.
Okay Fair enough and then a second follow up if I may I was just wondering just given your.
Uh huh.
Supply chain and demand base is there any risk at all just from conflict in eastern Europe .
Are there any impacts that that may be.
Yeah.
Coming down the line just in terms of the ability to get supply or anything else that we may not be thinking of at this point.
Well, let me start by saying the first we have no or very very very little sales and no footprint at all in these countries. That's the first thing.
In terms of supply chain.
Yes, definitely though you know we have similar for commodities that are like everybody else synergies is one component some ingredients fish as well so we have some exposure.
Hearing so far is there anybody else's.
Let's see what what the let's say the measures are more of a financial nature still obviously, we have not waited to prepare ourselves so.
We are we've demonstrated that we can be the adaptability is something that we are we have very strong wave.
That can be the name of the game and so definitely we will really have prepared ourselves in terms of how can we do the dependency can we move to the specifics if needed that kind of things. So short term midterm and are we preparing ourselves we haven't waited.
Okay, great. Thank you again.
Okay.
Our next question is a follow up from Andrew Lazaro with Barclays. Please proceed with your question.
Hi, just a quick one sorry, if I missed this.
Did you mentioned, what you were looking for in terms of total inflation in 'twenty two.
I'm, just trying to get a read there for them and what sort of pricing would be needed to ultimately help man.
Manage profit dollars. Thank you.
We haven't we haven't provided a specific number there, but suffice to say that when you start to aggregate the different pieces. If you want to have our Cogs and you know that.
A breakdown of our business is in the fish veg and the rest and you definitely have some view of the different components. We're clearly looking at depending on the on the category between mid to high single digit inflation that will require 50 associates associated pricing across the different ways you are going to execute.
Yeah.
Our next question comes from the line of Peter Cella with BTR King. Please proceed with your question.
Yeah, great. Thank you and thanks for taking the question I just wanted to come back to that previous question.
Can you just elaborate a little bit on what you can do on supply chain to make sure you have the appropriate product can you buy stuff ahead of time just to make sure that you're not in a crunch period with all the on Johns in Europe at this point. Thank you.
Why is that the first thing we're doing in for example energy for example, we fully hedged so that's one thing.
And we will see increased our hedge over time and then in terms of let's.
Let's say fish and all the rest of it as I said you know it is not limited to Russia, you have all the other suppliers. You also can move into other species that can be a wildcard Dave can be farm fish as well and by the way interesting also to see that for example, we're very proud of all.
For Green cuisine fish fingers.
That's a great way to obviously to increase the exposure to the consumers. It's a great product and I think it comes very handy at the right time, so a lot of a lot of options available. Some more short term by nature, but also as I think in a lot more in the long term, we will need to do.
Flex our muscle into visa demonstrating adaptability.
The one point I think just want to make sure. It doesn't get lost in translation. There is that we clearly have been in outdoors I mean on this one we have not waited for today to frankly start thinking.
Thinking is we had started a while ago as we saw the situation deteriorating and we we are attached for that have been put in place in order for our <unk> III think broadly from supply availability to possibility to adapt the formula while maintaining the same level of quality requirement for our consumers and making sure that effectively we had.
Preparedness scenarios in case, we had some supply route that would be shut down or wherever so let's not forget that 50 will continue but you've got as well veg, where we have let's say a stock that is being built.
For peace for instance, once a year, we have a great season last year.
Which is clearly going to give us quite large quantities of piece if you will for the year.
I mean, it's been asked in other products. So we're clearly having taken that very seriously and we will try to leverage our competitive advantage on the fact that we don't have any position in Russia, we don't have any position in Ukraine and why is that.
And we just need now to make sure that we get the product we need which we are working on I mean, the decision we have the right plans in place.
Okay.
Great. So is it fair to assume that some of these mitigation strategies and maybe any additional costs associated with them are already contemplated to a certain degree in 2022 guidance.
But at this stage I think it's the fact that it is too early to say because we don't know yet whether there will be something that is not the fact of the matter to your point I think it's important to understand that if at some stage we come in with other species. For example, we're also having conversations with them with our with all with our customers.
That's a that's a factor as well, but that's a fact.
It's something that everybody will understand.
The clear intent to your question is to remain committed on delivering double digit EPS growth so easily with some adverse element there.
No as you know our past record I mean, frankly, we deliver different over the road and the intent is to continue to drive the same pattern as we look forward in this year is no different from the others. We are committed to delivering the number that we have laid out.
Alright, Thank you very much.
Uh huh.
We have another follow up from the line of John Baumgartner with Mizuho. Please proceed with your question.
Thanks, Thanks for the follow up just a quick point of clarification, the $75 million share repurchase in Q4 is that is that sort of a timing thing where it will show up on the P&L in Q1 or was that kind of offset on a net basis by I guess share issuance I'm just curious because the share count didn't really move much in Q4 sequentially.
Yeah.
The number is.
<unk> in Q4 definitely I mean the.
What's what's important there is that the 75 East Q4. The 94 is the total it had been realized if you aren't overall.
<unk> been playing out.
Okay. Thank you.
We have another follow up from the line of Robert Moskow with Credit Suisse. Please proceed with your question.
Hi, Thanks, again, and just to be clear on the guidance can you confirm that it contemplates like $100 per barrel oil.
A significant increase in natural gas.
And maybe you can give us.
That's the bet on on what percent those components are of your total cost basket.
Yes, we can take offline the specific.
Feedstock, our underlying assumption on that I think Robert.
Rest assured that our forecast is consistent with the macroeconomic condition.
And that is already embedded into the guidance that we that we have our energy cost issuance represents a small percentage of our total Cogs as you know.
Even if we are in the three where we eat and we freeze, but it's still small the reality is that the fact that we've seen a significant inflation increases.
Which we haven't hedged against them. So that we would be covered for the year, but that can take offline. If you on the specific assumption relating to all of its U. Other other regimens that are of interest for you.
Okay. Thank you.
Okay.
You expect mid single digit pricing in your modeling for 2022 or did I mishear that.
No we didn't.
Great.
I'd say that inflation is not on the different category of products. We are facing with the range on a yearly basis. If you want from mid to high single on inflation, and then depending on the timing and our commitment to recover inflation through pricing and we will adapt the pricing accordingly, indeed I mean.
The total of the waves enable us to come out of the year to a record inflation.
Existing the year.
Got it got it thank you.
There are no further questions I'd like to hand, it back over to Stephane Dash maker for closing remarks.
Thank you for your participation on today's call.
Well 2021 has been an eventful year, we're all learning to live with Covid.
How do we see interest in that inflation impacting global supply chain organizations.
Organizations has remained focused and shown incredible commitment to ensure the delivery of the business objectives that we outlined at the start of the year.
We are pleased to have achieved our fifth consecutive year of record financial performance.
And look forward to making it six.
In 2022.
As a reminder, we got that we'll be attending the Academy event later today, where we intend to talk through the business drivers in more granular detail.
We look forward to speaking to many of you there.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
Okay.