Q2 2022 Nomad Foods Ltd Earnings Call
Good day and welcome to the Nomad Foods second quarter 2022 earnings call. All participants will be in a listen only mode should you need assistance. Please signal coffee specialists that great start key followed by zero.
After todays presentation, there will be an opportunity to ask question to ask a question. Please press Star then one. Please note. This event is being recorded I would now like to turn the conference over to Anthony to call. Our head of Investor Relations. Please go ahead.
Hello, and welcome to the Nomad Foods second quarter 2022 earnings call I am Anthony but Carlo head of Investor Relations and I'm joined on the call based upon the sheer maker, our CEO and Sammy Zeke <unk>, our CFO 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 companies.
Prospects expectations and intentions at this time.
Actual results may differ due to risks and uncertainties, which are discussed in our press release, our filings with the SEC and this slide in our Investor presentation, which includes cautionary language.
We will also discuss non <unk> financial measures during the call today. These non <unk> financial measures should not be considered a replacement for and should be read together with our <unk> results users can find the ifr S to non ifr'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 represent adjusted figures for 2021 and 2022.
All adjusted figures have been adjusted for exceptional items acquisition related share based payment and related expenses as well as noncash FX gains or losses.
Unless otherwise noted all comments from hereon will refer to those adjusted numbers with that I will hand, you over to Stephane.
Thank you Tony.
Good afternoon, everyone and thank you for joining us on the call today.
We are pleased to review our results for the quarter.
We performed well in Q2, despite difficult macro conditions across Europe .
We began the year old really addressing on the deflationary environment.
And we adapted quickly to meet these challenges brought on by Ukraine wall, both inflationary and otherwise.
We are encouraged by the resilience of our brands, our people consumers and our customers well.
Our revenues grew 17%, while organic sales trends improved sequentially from Q1.
Oh value share was stable why are we passed price increase to mitigate cost inflation.
Our supply chain, providing excellent service to our customers with bill rates improving material in the half year.
Year to date service levels have improved 160 basis points.
We continue making crucial supply chain improvements.
Why do you integrating and introducing new products to further drive organic growth in our newly acquired.
Why is rich business.
We all know through the most challenging period of the year on input costs.
We have covered nearly all of our raw material cost for 2022.
Additionally, we have worked effectively with our retail partners to set our pricing at levels that address input cost increases and achieved gross margins, which will allow us to appropriately support our brands.
As a result, we expect our business performance to improve materially as the year goes on.
As all of you know nobody has been navigating an extraordinary environment that includes high consumer uncertainty inflation as well as your break of the war in Ukraine.
The normal cadence of our business would be to have price discussions annually with our retail partners.
Z choosing the increases in Q1.
But given the rapid change in input costs.
Pricing actions have become far more dynamic given the realities of that dramatic cost inflation.
As we pass price increases this year, we expect pricing to fully offset volume declines leading to low single digit organic sales growth for the year.
Which we see as a relatively good outcome and a testament to the strength of our brands.
We believe further price increases will be necessary to recoup cost inflation and maintain our margins.
This should allow us to exit the year with gross margins and gastro appropriate to maintain the appropriate investments you know business.
With that I'd like to recap, our second quarter key financial metrics, beginning with reported revenues of 697 million Euro.
Which increased by 17%.
Driven primarily by the first inclusion of our newly acquired a terrific business.
Organic revenue declined by three 2%.
Sequentially, improving from Q1, but still reflecting the lingering impact of Covid lockdown comparisons.
And category weakness across Europe .
We delivered an adjusted gross margin of 28, 2% 260 basis points lower year on year, reflecting soft organic sales and the higher raw material costs.
Adjusted EBITDA of 127 million Euro represents a 3% increase compared to last year as higher input costs offset all the positive factors.
And finally, adjusted EPS was supposed to euro cents per share flat year on year.
Turning to slide four.
17% revenue growth benefited from strong ice cream sales in years with each region.
Why do we realize to one 5% net pricing for the company to quarter.
In July we saw a recovery in organic sales trends, although pricing was delivered to the market.
And we lap more normalized results.
Q2 represented the most unfavorable mismatch of price and cost for this year and is weighted a little margins, which.
As we all know joining these favorably.
As we discussed in Q1.
There is always a time lag between Cogs increases which are linear.
Price increases to the retailer.
Which are staggered.
We are no better matching of pricing to total inflation and.
And we are maintaining a dialogue with retailers about further price initiatives, which will recover or gross margins towards long term average levels.
Additionally, we have good visibility on cost as we are more than 95% covered for the rest of the year up from 85% in Q1.
On energy, we are covered for this year and well covered for 2023.
In H, one we learned adult pricing in the market.
In a dynamic pricing environment or overall value share was stable why are we gained 60 basis points, you know must win battles.
Our must win battles are in the categories in markets, where we define our success.
And we are pleased with this performance.
When looking at the challenging consumer environment.
Inflation as well as the consequence of the Duke when you walk across Europe , we are taking a more conservative posture.
As a result, we are amending our adjusted EPS guidance range for 2022 to $1 65 to 171 Euro.
Previous 171 to 175 year rule.
This represents high single digit growth.
Longer term our business strategy is on track and we are confident we are still on plan to deliver our 2025 adjusted EPS guidance of two points so as the euro.
Turning to slide five.
<unk> is a company that is always learning and evolving to new challenges.
We've done this in as an organization many times.
As we discussed at the top of all remarks, the war in Ukraine exacerbated the already rising inflation in Europe .
And disrupted global supply chains, especially in agriculture and energy.
We are adapting quickly and in Q2, we accelerated off piste diversification strategy grow green <unk> and move quickly to fully integrate all rapidly growing units.
First we are aggressively de risking of the supply.
We have plans to address this issue before the wall.
We have picked up the space in Q2 as the volatile global macro environment is threatening fish supplies.
We are securing new sources of farmed fish as well as adding geographic sources in species to augment our current supply.
We remain committed to sustainability and we are seeing within M. A C. In the ASC guardrails in these plants.
Second Green cuisine has a strong half year with mid single digit organic growth despite negative branded wins in that category.
Green cuisine has grown market share nearly 300 basis points in the trailing 52 weeks.
In Q2 Green cuisine more multiple choice awards in the UK and one in Italy.
We recently launched an advertising campaign, and you gave which is being well received by consumers and retailers.
Finally, Q2 sales growth in our newly acquired <unk> business was well ahead of plan with strong volumes in Croatia, and Bosnia and Herzegovina.
In May <unk> ice cream sales has a good early start to the season and benefited from Easter really high temperatures.
Food service was strong as Covid restrictions were lifted and traffic return to restaurants bars and hotels on the coast or integration is ahead of schedule and we are excited about the future of this new acquisition.
And with that I will turn the remarks overdue semi semi.
Thank you Stephane and thank you all for your participation on the call today.
Turning to slide six we provide more detail on our key second quarter operating highlights.
We reported revenues of 697 million euro in the second quarter.
The 17% year on year, driven primarily by the acquisition of Adria seek business.
As a reminder, that transaction was finalized in September 'twenty, 'twenty, one and will become fully integrated into our organic numbers in Q4.
Second quarter revenues also had a small benefit from favorable effects.
These revenue components were offset by a three 2% decline in organic revenues due mostly due to lockdown comparison, and a generally weak performance across the category.
Gross margins were 28, 2% during the second quarter, reflecting a 260 basis point decline versus last year.
The inclusion of the Adriatic, whose growth small seasonally higher this time of the year helped to offset gross margin pressure.
Moving to the rest of the P&L.
Second quarter Cogs increased 21, 4%.
An increase of 88 million euro versus last year.
Adjusted gross profit grew seven 2% to 197 million Euro.
Adjusted operating expense of 92 million Euro was up 19% year over year.
This rise in operating expense was due exclusively to the inclusion of the Adweek Division you know numbers.
As a percentage of sales operating expense was 13, 2% this quarter versus 12, 9% last year, an increase of 30 basis points.
Our EBITDA and EPS performance is what impacted negatively by the rapidly rising input costs.
Second quarter, adjusted EBITDA of 127 million Euro was up 3% versus last year and adjusted EPS of fault your sense was flat.
Turning to cash flow on slide seven we generated 36 million euro of adjusted free cash flow in the half year equating to 25% adjusted free cash flow conversion.
This is below last year, you, mostly due to a buildup of raw material inventories as well as the inclusion of our seasonal working capital outflow of 30 business, which was not in the baseband.
Change in working capital was 125 million euro or use of cash.
Sharply from last year.
Raw material inventory in anticipation of possible shortages.
We believe this was prudent considering the disruption risk in the raw material market deal.
The inclusion of the Atlantic also impacted this result.
Capex of 34 million Euro was flat versus a year ago.
As we mentioned in Q1, we do expect higher Capex for the year as we support strategic investment decisions and incorporate the <unk> into a broader spending plan.
Change in cash tax decreased by 6 million Euro to 25 million Euro while cash interest was stable at 38 million Euro.
We expect to deliver improving free cash flow through this year, but with delivery weighted heavily towards Q4.
However, the combination of stepped up capex higher raw material inventory and the first year implementation of the use unfair trading practices Directv, we leave as sort of a typical 90% to 100% long term condition target.
With that Nick.
Turning to our final slide slide eight to review, our 2022 guidance, which we are adjusting from Cagny and our Q1 earnings reporting me.
Guidance on sales and EPS is based on our best projections of cost inflation and other factors in the second half of 2022.
As Kevin mentioned in his remarks, we plan to recover cost inflation could pricing in the back half of the year and thus we expect an improving gross margin profile over the course of the second half.
To be clear.
Sequentially better financial performance in the back half of the year based on improving margins as our pricing takes hold.
We expect organic revenue growth in the low single digit range for 2022.
This will be driven by price increases in half two.
Low single digit growth is consistent with what we guided in may.
We expect a significant spread between price and volume, but we expect price to fully offset volume declines.
We expect to get even contribution to dry reported revenue guidance of high single digit for the full year.
For capital allocation is a priority this year to use our cash to support operations.
Hum.
C share buyback are central to driving shareholder value. However in Q2, we did not repurchase shares after motivates repurchases in Q1.
Our $500 million share buyback program remains in place until August 2024.
For the balance of 2022.
King of cautious.
In consideration of the volatile consumer outlook and other factors such as the impact of the Ukrainian world across Europe .
As a result, we are amending our adjusted EPS guidance to a range of $1 65 to 171 euro per share from the previous $1 71 to $1 75.
We believe that we remain on track to reach our 2025 of adjusted EPS target of two thirds Europe .
That concludes our remarks.
I'll 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.
Ask a question you May press Star then one on your Touchtone phone.
Youre using a speakerphone please pick up your handset before pressing Vicky.
Draw. Your question. Please press Star then two at this time, we'll pause momentarily to assemble our roster.
And our first question today will come from Andrew Lazard with Barclays.
Please go ahead.
Great. Thank you so much.
So no magic running organic sales down about 4% in the first half and this implies obviously more than 4% growth in the back half I appreciate more pricing has to come in and as you said comps are easier but.
And I guess mid single digit organic seems maybe somewhat of a tough task in light of the macro environment in Europe . So maybe can you discuss a little bit of a bridge on how you get there is it mostly pricing kicking in with an expectation that volume elasticity does not worsen from here.
And then pricing as you mentioned didn't accelerate much into Q. It sounds like more is going to become visible in the P&L, what's your expectation for the benefit of pricing for the full year. Thanks, so much.
Good morning, Andrew and thanks for your thanks for the question, let me let me handle the question.
And let me dissect the beat the numbers to your point I think.
H one was really representative of the end of the Covid comparison.
And in terms of fries, a waiver we successfully negotiated the price increases it's really comes at the end of the quarter.
When a when I see for example July .
July excluding the advantage in terms of sales is around 7%.
She's really ever been at that even though COVID-19 is behind us.
And indeed, you know the price increase that we have negotiated during the first half hour are you starting to kick in.
And then I'm moving forward to the full year, what we see is we are expecting a pricing in the region of mid teens.
I see.
In line in terms of market share.
Yeah, we need we need to be glad that the volumes will decline as a result, and obviously we will without you know we think we're going to do.
Are we going to do that so that's a combination that's really about it.
The offer Kobe.
Our market share and more importantly, its pricing.
And yogurt.
I think it's effectively then we'd be in exhibition during Q3 and Q4 that's for sure.
Great and then just to make sure I heard it right you said July sort of on a on an organic basis was up seven I think and then yeah.
On a full year basis, I think on a full year basis, you said you'd expect mid teens pricing did I hear that right.
Correct.
Great. Thank you.
And our next question will come from Jason English with Goldman Sachs. Please go ahead.
Hey, guys two quick questions first a follow up on that pricing.
It sounds like you have most of it already negotiating locked in but I I think I did hear you say in prepared remarks that you believe you're going to need further price increases to cover that cost pressure. So can you clarify.
Yeah, Hi, Jason Yes, absolutely we have gone through our first.
First the waves as we have discussed previously and successfully and as we alluded to earlier, what we had said he didn't think that you would consider.
Towards the end of the year of pricing, which is primarily an advancement of the Q1 pricing into this year Q1 of next year and that's G. Now and you can for sure yes.
Thank you that makes a lot of sense I appreciate the clarification and the acquisition in the Adriatic region.
The M&A contribution continues to exceed our.
Our own expectation every quarter it looks like the business is doing quite well if it were including your base what would your organic sales growth looked like through the first half of the year.
Well, we've it's a very good question and it's working extremely well to your point ahead of expectations and market share wise as well by the way there were still have increased their pricing. So all of them all is green.
Yes metrics. So we when you compare let's say the the minus three 2% that we are we have excluding yet.
Yes metrics for the existing business in terms of sales.
Do it pro forma.
Q2 for <unk>.
And we would include it obviously in the fully in the business, we would be just short of plus 1% for the full business.
So our folks.
Quite frankly, that's what it is.
And so it's a sizable sizable difference.
Yeah for sure and it do you think that's durable or was this just unique because the warm weather boosting ice cream or is this really is kind of reflective of what this business can contribute to you.
Well.
Obviously, a weather its thing erode don't don't get me wrong.
God knows you.
And you know what's going to happen next year in terms of in terms of Oh Pete.
Nobody knows this the only thing we know is also we're gaining market share and we also know that while we could sell even more.
So at least you were sort of learning for us.
Full okay can we also even produce ahead of time. So we're learning what do you think so.
Difficult to know, but let's not forget that.
Each wave is playing a role in that gets you broad for the rest of the business much less pronounced to be fair, but it's a bigger business. So yes. So all in we are very very pleased with what we see with the with the business.
We're learning ice cream, and we love ice cream Jayson.
You may begin.
Maybe just didn't work out with them.
The second point you to find it.
So we have seen has been an acceleration of convenience driven by the fact that the tourism has caught up as well, which I think he has pushed the impulse category program. Even further so there is a bit over.
What we had anticipated in the healthier into this year, but let's say from a health standpoint. This is a very healthy very healthy business, we do with good growth potential.
Great to hear thank you I'll pass it on.
Okay.
And our next question will come from Rob Moskow with Credit Suisse. Please go ahead.
Hi, Thanks.
Your your guidance assumes mid teens pricing for the year, which means a rapid ramp in the back half, but I think it also means a 15% decline in volume for the year with an equally rapid decline by the end of the year and you said that you've loaded up on the water.
A lot of raw materials to prepare for shortages.
So what's the impact of a decline in volume like this on your operating leverage.
And also on your your balance sheet.
Yeah, I think Rob I think the net of all of that is still is actually going to give her a low single digit growth for sure.
Various pricing mix and there is volume as well so when you combine the totality of that we're not getting to a mid teens volume decline you get into probably a high single digit volume decline and those costs have been factored into our operating.
It's the cost overall, we've been planning for that as we effectively enter into this year with significant pricing and from that standpoint, and that's reflected in our gross margin protection.
So that implies a pretty significant mix benefit what what's driving the mix benefit.
But we're clearly having most of the categories that have higher miles in the country that have a higher margin that are clearly executing pricing and driving those category with the higher margin that are pushing are going faster than the rest.
And the fact that for instance, we're starting with the U K.
Very much all of the pricing wages as a significant contributor as well to this acceleration release explains I think the fact that there is a mix factor on the category side and on the country side as well.
Okay. Thank you.
And our next question will come from Steve powers with Deutsche Bank. Please go ahead.
Yes, Hey, good morning can you hear me okay.
Yes, Okay, great great just on that last on that last just to clarify.
I interpret it as mix is mix it expect it to be positive on the year or is it expected to be negative on a year, especially you have mid teens pricing negative high single digit volume.
Sort of a bit of negative mix to get you back to low single digits for the year I'm a little confused if its positive or negative mix, you're expecting on the ear.
No actually.
The pricing range on average is about let's say the mid.
It seems that you have the rest of the volume is going to be in the range of about as I said high single digit I would say on that one and there is I think your balance of things. If you think from a mix standpoint, and there is as well.
Increased support driven by the promotion that we need to put in place in order to drive the business, which effectively equates to the low single digit growth for the base business understood promotions. Okay. Thank you.
I also is there is there is there an ability for you given given your your visibility in some of your your hedge positions into 'twenty three is there.
Is it is it too early to talk about it on early expectation of above inflation for twenty-three at this point.
Any color you can offer us as to what 23, it looks like from a cost inflation standpoint.
I think it's too early I would say there's no.
A lot of moving parts as you have seen some of the commodities are going down and now for some of the items, even though effectively those represent a tiny portion of our portfolio.
There is a downward trend on those on the older. The fact is.
There is a stabilization at the peak point and we are effectively as well.
Extending some of the hedging activities, we had in areas like energy to cover for the nation I think expect more as we provide guidance for 2023.
Understood. Okay, and then I also if I could I wanted to ask about operating expenses. They came in higher than I think you know, we and consensus was expecting this year I understand a lot of that is it's probably for de novo and not rolling through ahead of schedule from your perspective, what are the operating expenses.
In line with your expectations.
Except they came in ahead is it is it really only for Nova or is there are there other inflationary aspects.
You know it impacting impact and not a lot of the P&L as well that we should we should be thinking about it.
No. There is clearly I think this is the area as well.
<unk> talked in the past I mean on Cogs and operating expense when we shall proceed.
Good visibility on and except for kind of why there hasn't been any kind of noticeable item that would effectively be of importance for me guys.
Okay very good thank you very much.
And our next question will come from John Baumgartner with Mizuho.
Go ahead.
Good morning, Thanks for the question.
Or stephane I like to ask about the positioning for your frozen categories here at retail.
<unk> perspective, the price gaps relative to shelf stable and fresh they seemed to have widened even compared to the credit crisis 15 years ago, and I'm curious hey, how do you think about consumers trading down to frozen in this environment right. The price caps would seem to be pretty favorable relative value and then b. What are you seeing from retailers I mean.
Do you expect them to manage the frozen category differently over the next six to nine months or the increase in visibility for your categories are they supporting non price promotion for these categories. Just how you think about frozen versus fresh and then Andy and in this environment. Thank you.
Well well overall to your point, Jon I think you know this.
This is a category that is doing well in recession time.
And at this stage no wishing the same.
In terms of fresh versus the others I think it is very difficult to reach you know just because at the same time, we see there.
Some people are increasing price later, so well, let's let's see a bit you know where where things standing but that's what we see at this stage, we haven't seen any significant difference with the other categories.
I think the big piece to remember is a you know we're getting out of Covid and the addition of new consumers coming B. You know you can see some people coming from from let's say, let's it's Audiphone restaurant, you know restaurants, and moving them back to work.
The retailers and obviously.
Again.
This category is doing well I think what we need what we will also do together with the retailers is to explain the whole greatest categories not only in terms of affordability, but also in terms of waste for example, and this is great in terms of cost of living you know.
This is a category that's where you can keep it you know it doesn't lose anything and so these are the kind of things we're going to do much further in the industry in the future, but I'll be confidence with the long term future of this category in especially in precision time absolutely.
Okay. Thanks for that and then and then see any questions for you on the guide for 2022.
Lowered EPS, but maintain net sales not that high single digit range can you discuss anywhere in the P&L, you're taking a more conservative stance you know tied back to the macro comment is it is it more gross margin is it more opex you may have to reinvest back more just any clarity on that on the incremental change to the outlook. Thank you.
Yes.
He helped on the Opex I mean to be very clear on the call because we have increased visibility overall.
The reality is that you really simply reflecting a cautious view on the fact that the economic environment is becoming quite uncertain. There. So they are pressure on effectively the topline that would require probably for the strengthening of the business in order to make sure that the pricing is going through over the full year.
Okay. Thank you very much.
And our next question will come from Cody Ross with UBS.
Go ahead.
Good morning, Thank you for taking them.
I just want to follow up last question there it sounds like you're taking a more cautious stance on topline view by internally for your organic sales outlook can you just comment further there what described.
But the the mountain as you see the margin change that you see from one guidance yoga or he's effectively within the range of what he is no. Let's say when we talk about high single digit revenue growth, which remains the case I mean at this stage is continuing to be the case.
Element there as I said, it's too.
Marginal impact to overall, what we see is effectively we see the some constrained some elements that potentially could affect our top line progress overall for the year, but that would still leave us in the range of high single digit overall, that's not going to change from that perspective. It typically there would be some movement. There. This is what's effectively.
<unk> is creating the level of uncertainty that is impacting our EPS guidance simply put it takes probably more efforts to execute three price increases that's what we had anticipated.
Got you so it sounds like on the range just at the lower end of the range now understood.
And we certainly want to have the right sorry, we are determined to have the right price right, but let's say that.
To get there might be a bit more difficult, but definitely for us it's a priority number one.
And the one thing.
We clearly have a.
I plan to get to the higher end of the range simply the uncertainty, which we felt important to reflect but the 171, if we're leaving it within the guidance range is clearly within reach as well. So this is the range we're thinking about.
Understood. That's helpful. Thank you very much for that and then just last question for me you didn't repurchase any shares in the quarter, which is in line with your private prior guidance as you've worked to secure inventory can you talk about your potential to increase share repurchases going forward, especially given where the stock is trading at.
Yeah.
At the very stage, if you you're right I mean, you're all the points you just made after the correct. What we clearly stated we will continue to support the operations, which is Canadian number one Ricky there. We are in an environment of supply constraints. I mean, this is really critical for us to make sure that we have the product we need at the right pricing for us to serve our consumers.
From a share repurchase standpoint. This is effectively something that we have in our radar screen as you know in terms of returning it to the appropriate level of return to our shareholders and taking into consideration within the Grand scheme of other options that we have set the stage and clearly this is one possibility, but for the time being the focus remains supporting the operations.
And our next question will come from Jon <unk> with CJS Securities.
Go ahead.
Thank you. Good morning, This is Dan Moore for John .
Lot of the questions have been covered maybe just any updates on the strategic alternatives process wanting to any detail additional detail you can share in terms of securing alternative supply for fish you mentioned that in your prepared remarks, you know any specificity there would be great. Thank you.
So.
Let me cover, but I think that you're talking about fish most of that's.
That's a few questions I understand.
So.
From that standpoint, it's it's it's so you know we've taken a lot of steps. We've made a lot of improvement where you know the risk has definitely gone gone down since last time. So we've increased purchased from outside of Russia. We've gone through all the species and also very importantly, we also have gone to them.
So are we starting to to reduce our reliance by undergoing wisdom with I found fish, obviously off with the high quality.
But we are starting with is this piece and we've made a lot of progress.
We've made we've made all the testing session. The consumers are very pleased with the outcome and are we going to start very soon you know industrial production. So these are exactly the kind of things. We said, we would do and we're doing it and on top of that you know the last pieces. We also said that.
The fish lists of bonds.
Which is part of Green cuisine is really on fire. So this combination makes it that definitely we are reducing where we are reducing our reliance on the on the on that part of the fish.
And your first question, which is a 13D I think.
There's no more additional comments I need to provide them. The one that you're aware of I mean at this stage.
Understood. Thank you.
And our next question will come from Jay and Chuck.
And with Citi. Please go ahead.
Hi, Thanks for taking the question I also wanted to ask the frozen category what impact you're seeing if any from private label just I missed the price hikes and as you move forward do you expect to see additional pressure from the private labels.
So overall as you have seen you know we have maintained our market share.
So given the environment is not something easy, but we've been able to do this really really really well.
And and in terms of must win battles you probably know what almost been bottled water, that's really the categories, where we want to win.
And also in the countries, where we want to win so in this year, we've increased market share in the course of the last quarter and especially next one no obviously with what we what we have is that we want to go or are you seeing an increase.
And increase our market share in the future I think we have the right brands, we have the right programs.
And we're doing well vis vis private label, let's never forget that all these guys are going through the same kind of purchase cost of goods increased like us. The only difference is which is obviously we are we are moving ahead. As you know we are the price leaders and and we are most of the time, we have heard of.
In terms of pricing and the only thing we don't know by definition, if and when these guys are going to increase price, but they will help us fight we they shoot at some stage, but again I'm not in the issue. So overall you know the brand equity is stronger than ever.
We are very pleased with what we're doing and but the pricing number one as we said is to make sure that we are going to have the right gross margin and we're going to be in a position to start 2023 exactly of the delivered we wanted to be able to reinforce our brands.
Great. Thank you I appreciate the color I'll pass it on.
And our next question will come from Brian give me with Neuberger Berman.
Go ahead.
Oh, great. Thanks, a lot for the call just a couple of questions on cash flows if you don't mind and.
Can you just sort of break down the cash flows relating to exceptional items are about 29 million year to date and I know historically it had been running them over 15 million for the last sort of effectively the last four quarters can you just give us some idea of when you'll get them below 15 or or maybe some sort of color for the full year would be great and also working capital there's quite a large outflow.
Year to date, that's inventories and receivables.
Any sort of guidance on where you see working capital for the year and I don't want.
What the drivers are for that large outflow.
And then maybe just one final question then just in terms of the fish sourced from Russia can you actually quantify what percentages is sourced from Russia odder.
Maybe at the end of FY 'twenty, one and where you are today alright. Thank you.
Yeah, I would suggest that.
On the.
Off line item, we took this one.
Offline I think in the follow up question I think it makes more sense to some of these on the working capital clearly there has been effectively a significant rise in the working capital driven by the investment we have made in inventory I mean, particularly in raw material and packaging material in order to secure the supply that's been effectively as well.
The inclusion of <unk> in there that is driving it.
Let's say a part of the central I mean rise in working capital and that we expect over time in the year, we're taking a very aggressive look at our cash flow.
To make sure that we deliver cash performance thats consistent with the plan that we had in place by revisiting our capex our inventory approach to make sure that frankly, we clearly have what we need in order to safeguard the year enter the year with the right level of inventory and but on the other side. If I can go on the journey of logistic hanging down as we move forward in that so.
We clearly expect substantial improvement in in the fourth quarter in particular and returning taking into account all the investments we have to make in Q3 and working capital.
So as far as the Russian fishes concerns you on this.
For commercial reasons, we are significant but for commercial reasons, we are not disclosing the.
The percentage of the amount, but as I said for all the reasons I mentioned.
Going through all the species, which are most Russian or what's more so than a misfire, which is more going to pack gas use which is also about you know plant protein. We are we see that it's starting to go down and it will go down and Don you know over the next quarters and years still.
No I think we believe that in the future we will still work with our with the overhead and suppliers, but we have no we will be in a position to move to switch them faster and easier from one category to another.
Okay not aspect can you just put in context, the level of cost inflation, you're saying for fish, because I was here changing suppliers on because.
Because I've seen general cost inflation anyway, so I'm, just wondering what level of <unk>.
And you're saying.
Okay.
We see broad based inflation in virtually all of our ingredients I would say on the on that one and you've seen the double digit range as we as we have talked I would say overall, depending on the species depending of the category. That's typically a broad based inflation that we see overall.
I appreciate the color. Thank you.
Okay.
And again, if you'd like to ask a question. Please press Star then one our next question will come from Ali Oreo with H P. S. Please go ahead.
Hi, Good morning, and thank you for taking my questions can you hear me okay.
Yes.
Awesome. Thank you.
Just a funding round off on the on the fish point and I don't know a couple of people lost I. Appreciate you might not be able to disclose the exact percentage and appreciate obviously the Fisher side is doing well and you're waiting till the species. Just just I mean, clearly represents a material part of the fish tells me I'm. Just curious was that no sanctions impact on the Russia side, and then maybe could you speak.
The official thing in China, It has not been a K a.
Hum.
And maybe directionally.
Maybe if you say in the next year or so do you see kind of what kind of it says U S, Russia, and China, what will be the majority kind of region, providing your fashion, maybe you could talk directionally towards those regions and what you've seen.
Okay, Let me start with the first part of the question, which is the sanctions.
So from the European standpoint, you.
No sanctions are visibly in whitefish, which makes it by the way a lot of sense because the checks you know so what the impact would be for the consumers that come to the conclusion that for the consumers it will be much more negative than for anybody else. So that's one piece.
Even though you know with some tariff 35% have been levied in the in the U K, but you know when we've taken some strategic decisions.
And for US you know this is Jim.
Negligible. So it doesn't impact you know really all all fish in the U K, let's not forget we have several factories and obviously several ways to sue them.
We source the fish. So that's one thing as I said.
Looking forward.
We believe that you know that we are going to reduce our reliance on on the Russian fish.
The Chinese processing well you know it's been a bit are you.
During Q end of Q1 early Q2, you may remember with the Shanghai locked down even though it was at least a chaotic.
But you know we are we know its back on track and I would say if I you know again if I.
I could see looking forward, it's going to be really a combination of wild fish between the U S.
Russia, or Chinese Russia, but also let's say did the farm fish.
Mostly coming from Vietnam at the right level will be will be very important for us.
We are in the process to secure long term supply of the right level with the right quality very much the way of what this company did something like 20 years ago with MSC.
Marine Stewardship Council, we're doing the same now with the ASC, which is equivalent for for farm fish and.
And we're going to set the standards and the standards will be high.
Because that's exactly what we are which is obviously, a good value and a great value and great quality.
Okay. Thank you very much leaving just the cost base what percentage of sales does energy represent and and again helpful. Like like you said double digit increase on Fisher price it would be interesting.
What are the what kind of range of increase have you seen on your energy cost Oh excuse material given your cold chain requirement.
Yeah.
Yes, we do.
I'll just close the let's say the share of energy and a total cost, but we can tell you that it is of importance I mean of course.
But because of all of it effectively.
King into cold chain that piece that is associated with that what we've done on energy as we have taken our hedging approach I mean to that so that we started since the beginning of the year that has enabled us to level up because this year and be well hedged. If you want a throughout the middle three fourth of the of the next year. So we've been managing it quite let's say well overall.
In order to mitigate the impact decent next year.
Yeah.
Okay. Thank you and.
Have you considered kind of the availability of energy obviously for example, in Germany and in France and in some European countries. If you. If you want for example that you weren't able to get gas without having any material impact.
So it's a very good question as you can imagine to your point, you'll be surprised and there is also availability. So we see it in and that's one of the reason by the way over the course of.
The last two months you know consumer.
Obviously significantly worse, but that's something else.
In terms of availability, but we are checking is obviously the ability for us to move from from gas to other energy and we're working very hard in all this piece.
We've made a lot of progress in terms of ability to switch from one to another.
Okay. That's really helpful. Thank you and then finally for me I just read in the materials that fortinet over revenue of up to 98 million in 2019, and then 261 in 2020 and EBITDA declined in that same period from 59 to 50 could you. Please give some color on that what why did it decline and obviously you've mentioned it's good.
Growing very well organically in the most recent periods.
Why did that happen between 19 and 20.
Yes, there was a clear impact driven by Covid I mean over there I mean, because this is an area where tourism is of importance and as you know what I mean is directly proportionate to tourism as we see clearly COVID-19 now let's say.
In the back I mean in the in the base period, and we see tourism going back and combined with the very hot summer, we see effective combination of let's say the moon. The stars are aligning the business is doing very well this year compared to the prior year.
If you don't mind there is another thing which is something we could see from the start is the phone was on the phone or on the was no longer considering you know that's part of the business our strategic so it was very much you know based on retail and we've seen that several times you've seen you know we've purchased in a series of a frozen food business.
That's we are no longer considered strategic for the previous owner and then we've seen a difference when it's really the focus for the whole organization and so we're starting to see already on top of it obviously as we said you know the difference at the end of Covid. It was also the heat when we're making progress in market share, but this is the kind of things, but when you have to go.
40 focus behind one gets you can read what he does.
Okay, understood and and and sorry D. Do you think for example, then for 2022 that two nine at the 2019 pre COVID-19 levels as it is a decent number to go by and then.
And then they'll carry on growing from there or is there a different kind of just on a kind of revenue level different area.
Ballpark, we should we should look towards.
No I think the business will continue I mean, this year is on the ease and the rule and growing really well double digit growth and clearly we'll end of the year within the range of double digit growth as well.
He will be a key contributor to the rest of the of the business as we as we have alluded to that.
As we said I think earlier in one of your question is there is a bit of a.
So while the impact of the fact that the acceleration of two reason that we had planned to be spread over the years is concentrated more this year exacerbated biosimilars, we probably have a bit of an exceptional acceleration of growth. This year on 14, Navarre and but it will continue to grow into the outer years.
Okay, and finally for me sorry would it be reasonable to assume then.
Do you make any change to your I think you guided towards $2 9 billion revenue is your expectation for the area.
Q1 call is that Directionally, it's still way you expect to come out or would you make any changes.
We've met we've maintained the guidance I mean on the site that we said effectively high single digit revenue have been fully included so I think that's.
That's been changed in terms of the guidance that we gave on sales.
Okay I'll jump back into queue. Thank you very much.
And this will conclude our question and answer session I'd like to turn the conference back over to Stefan to Shoemaker for any closing remarks.
Thank you operator.
So we are adapting quickly to the dynamic to a dynamic and changing marketplace.
Or has been changed by the back to back the crisis of Covid in the Ukraine wall.
And I'm very pleased with the determination of our people in the whole way we have adjusted.
We have strong plans in place for the back half and we are well prepared for 2023.
Yeah.
Thank you very much.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
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