Q3 2022 Nomad Foods Ltd Earnings Call
Yes.
[music].
Ladies and gentlemen, good morning.
Ladies and gentlemen, good morning, and welcome to the Nomad Foods Q3 earnings call.
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I would now like to turn the conference over to Anthony Gallo.
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Hello, and welcome to the Nomad Foods third quarter 2022 earnings call I'm, Anthony <unk> head of Investor Relations and I'm joined on the call by Stefan just 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 company's 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 nine I F. R. S 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 I F. R. S results you just combine the I F. R. S to non I F. R. S. Reconciliations within our earnings release and in the appendices at the edge.
The slide presentation available on our website.
Please note that certain financial information within this presentation represented 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.
Less otherwise noted all comments from hereon will refer to those adjusted numbers.
I will hand, you over to Stefan thank.
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.
<unk> had a very strong performance in the third quarter.
We will boost by solid commercial and supply chain execution as well as price increases across the business.
I'm, especially pleased with the performance of the great people across nomad.
The leadership.
Focus hard work and creativity.
In Q3, our reported revenues grew 27%.
Organic sales increased seven 2% driven by double digit net price increases, which offset much of the cost inflation, we experienced in the first half.
But we still have work to do and we remain committed to a journey of growth acceleration.
Value creation.
Richard region posted another very good performance.
By strong sales of ice cream brands.
Our leading plant protein brand Green cuisine is winning in the market.
Had another good quarter.
Green cuisine is growing sales high single digits and reached its highest ever before weak market share at 16 bond 8%.
This was a 140 basis point improvement versus the same period last year across Europe .
Further fortifies, our number two position in the plant protein category.
Overall, no loss of small degree of value share.
However, we believe this is temporary in nature.
We will regain share over the medium and long term driven by consistent innovation in all Gulfport.
We know that the consumers are under pressure.
We are preparing us for the <unk> initiatives.
Keep them with Nomad brands in partnership with our retailers.
Within the portfolio, we are developing value innovations.
Drop through tasty healthy and sustainable meal solutions.
All with price points.
We believe we are well positioned within the supply chain structure to drive growth through effective cost management, winning innovation and strong service execution.
In the first nine months of the year, we improve those service level by 90 basis points rising to 96, 7%.
Additionally, we are fully covered Augusto good sold for 2022.
And we have made great progress in securing supply at competitive costs between three.
We also in the past, we're extending our debt maturity profile in 2028 and 2029.
So we're refinancing of four $916 million principal term loan b due 'twenty 'twenty pool.
With approximately $830 million term loan B U 2029.
Looking ahead to the fourth quarter.
We are still working to adjust our prices to recover input cost inflation.
This will enable us to maintain appropriate level of investment in our business.
As well as the frozen food category on the board.
We've made great progress in this area and as we head into 'twenty 'twenty three we expect our business performance to continue improving.
We expect full year net pricing to offset volume and mix declines.
Leading to low single digit organic sales growth for the year as well.
We further offset input cost increases, we expect gross margins to improve over time.
No Matt is navigating a challenging consumer environment, which includes high energy prices rising inflation and political disruption.
Wherever we executing wells to the spirit of uncertainty.
We believe the steps we've taken to the lowest winter of 'twenty 'twenty three in a position of strength.
With that I'd like to recap our third quarter key financial metrics, beginning with reported revenues of 760 million Euro, which increased 27% year on year.
Increasingly we bought the sales was driven by the inclusion of our recent acquisition and good growth in organic revenues.
Organic revenue grew by seven 2%.
Driven primarily by double digit net price increase in the quarter.
Q3, we presented sequential quarter of improvement.
The best performance since the fourth quarter of 2020.
Well volumes and mix were down three 4%.
Driven by elasticity impacts.
The offset by positive mix.
We delivered an adjusted gross margin of 29, 1% 110 basis points higher year on year, reflecting the benefits of new pricing and the inclusion of the agency region, which has peak margins during this summer.
Adjusted EBITDA of 153 million Euro represented 35% increase compared to last year as higher input costs were more than offset by higher pricing and SG&A phasing.
And finally.
Adjusted EPS was <unk> 52 euro cents per share.
Nearly 50% year on year.
Turning to slide four.
Oh revenue has benefited from a return to organic growth in our base business.
We have successfully landed though pricing initiative throughout the year, realizing a 10, 6% net price increase in the third quarter.
This price increase offset a three 4% decline in volume and mix.
In October we maintained our sales momentum with mid single digit sales growth.
Remain on track for low single digit organic sales performance would improve.
In the third quarter, we substantially narrowed the gap between input cost and price, which has opened in the second quarter.
There is always a time lag between linear cogs increases and the staggered price increases to the retailers.
We have nearly caught up to that lag.
Additionally, our dialogue remains active with retailers regarding further changes to our pricing, allowing more adjustments over time as we rebuild our gross margins. We have good visibility on costs as we effectively covered for the balance of 2022, and we own schedule for covering costs for 2023.
In a dynamic pricing environment.
<unk> grew value share was down slightly for NCI business and you'd know must win battles in Q3.
Year to date overall share is don't only slightly and is lapping almost in bottles.
We believe these market share lost is short term in nature.
We're making significant progress in extending our debt maturity profile.
This would be through a refinancing of four $960 million term loan B you meet with its been before with approximately $830 million.
Loan be due 2029.
With this extension or entire debt portfolio would be fully covered until 2028 and 2029 at an attractive interest cost.
The deal has been priced and we'll close this Thursday.
This will enable us to focus my attention on accelerating growth and winning with the consumer in a highly volatile environment.
With the successful execution of our pricing strategy and coverage on cost for this year. We are affirming our adjusted EPS guidance range for 2022 to $1 65 to 171 Euro.
This represents a high single digit growth versus a year ago.
Longer term, we are pleased with our business trajectory and remain confident that we will deliver our 2025, but adjusted EPS target of $2 30 Euro.
Turning to slide five.
No Matt has successfully adapted to difficult challenges many time towards always three.
And this year is no different.
The war in Ukraine has required us to react quickly to change the market.
We can report progress on three focus areas, which have all strengthened the old business.
First we fully executed the planned price increase in the quarter.
And we see this as a testament to the strength of our brands and strategies.
We believe we will be in a good shape to enter 2023.
With the margins and cash flow needed to invest in our brands.
Seconds of fish diversification strategy has moved into a new stage.
We have good news on our growing investment in high quality farm fish.
Happy to announce that we secured supply in October with major producers.
All of whom are ASC compliance.
Currently 98% of our fish comes for sustainable fishing, all responsible farming.
We believe we are on track for that to be 100% by 2025.
These new source not only diversifies, our species and geographical sources.
But it is also an additional driver of our sustainability goals.
We expect to see the initial benefits of new supply early in 2023 with the potential for rapid growth in capacity expected over the next three years.
This investment in farmed fish also provides us with an additional platform for innovation.
We have plans in place for new high quality finished products in the coming years across many key nomad markets.
Finally, we are proud to report that our successful integration of the geographic region is ahead of schedule and ahead of our expectations.
We had a strong summer selling season as tourists returned to the <unk> side.
By good weather during most of the summer.
We saw a strong recovery in the on trade channel and gain market share as well.
The region is ahead of plan on sales and EBITDA year to date and.
And we expect this region will be an important source of growth in the future.
As a note the 40 nobody transaction was finalized at the end of September 2021 is Nina is now fully integrated into organic numbers going forwards.
And with that I will turn the remarks over to semi semi.
Thank you Stephane and thank you all for your participation on the call today.
Turning to slide six I will provide more detail on our key third quarter operating highlights.
We reported revenues of 760 million euro in the third quarter.
With a 27% year on year, driven primarily by price increases in our base business as well as our new acquisition.
There was a small benefit from February Vale picks as well.
Organic revenues were boosted by 10, 6% net pricing, which offset a three 4% decline in volume and mix.
Gross margins were 29.1 percentage during the second quarter, reflecting a 110 basis point increase versus last year.
Price increases helped to drive margin improvement.
Moving to the rest of the P&L.
Third quarter Cogs increased 24, 7% an increase of 107 million euro versus last year.
Our adjusted gross profit grew 32% to 200 and puts you 1 million Euro.
Adjusted operating expenses of 91 million Euro was up 27% year over year.
This rise in operating expense was due to the first time inclusion of our new acquisition.
However, as a percentage of sales operating expense was flat at 11, 9% versus last year.
Our EBITDA and EPS performances were positively impacted by higher pricing in our core business.
Third quarter adjusted EBITDA of 153 million Euro was up 35%. This is top tier.
Adjusted EBITDA margin landed at 22% an improvement of 130 basis points.
Adjusted EPS of <unk> 52, Euro cents was up 49%.
Turning to cash flow on slide seven we generated 24 million euros adjusted free cash flow in the first nine months of the year.
As you know raw material markets have been volatile towards 2022.
In response, we successfully protected our business by building raw material inventories to head off any shortages.
We believe this was the right step in our customers and consumers receive an uninterrupted supply of our product throughout the year.
We improved our service level, showing our commitment to serving the market.
As conditions have subsidized we have begun reducing working capital and we'll continue doing so into 2023.
Capex of 55 million Euro was it slightly this has stopped here.
And we flagged in our Q2 earnings report, we do expect slightly higher Capex. This year as we support strategic investment decision and incorporate our recent acquisition into our broader spending plan.
Changes in cash tax has decreased by 19 million Euro to 44 million Euro while cash interest was up at 69 million Euro due to the comparison with last year's refinancing period and other smaller factors.
As mentioned in our prior year of release, all free cash flow generation will be weighted towards the final quarter of the year.
Stepped up Capex and how your raw material and packaging inventories, we leave us short of our usual, 90% to 100% long term conversion target this year.
However, we expect Q4 cash flow to be consistent with our historical performance and expect conversion rates more in line with our long term targets in 2023.
With that let's turn to our final slide slide eight to review our 2022 guidance, which we are reiterating from our Q2 earnings report Noga.
Our guidance on sales and EPS is based on our best projection of cost inflation and other factors for the fourth quarter of 2022.
As Steven mentioned in his remarks, we expect to recover the cost inflation through additional price increases in Q4, and this we expect progress on our gross margin profile for Q4 and the full year.
We expect organic revenue growth in the low single digit range for the full year of 2022.
This will be bolstered by additional price increases in Q4.
As we noted in our Q2 earnings report, we expect the significant spread between price and volume, but we also expect net pricing to fully offset volume declines.
We expect yet where <expletive> region contribution to drive reported revenue guidance of a high single digit for the full year.
When modeling Q4, please keep in mind, we did see some albeit minor forward buying in Q3 ahead of our Q4 price increase but we are keeping our full year expectations are intact.
On capital allocation. This year, so far it had been a top priority to use our cash to support operations.
We did not repurchase shares in either Q2 or Q3 after moderate repurchases in Q1.
However, we believe share buyback is central to driving shareholder value.
500 million dollar share buyback program remains in place until August 'twenty 'twenty four.
Well the balance of 2022 without pricing what did is taking hold and full visibility on cost we are holding to our adjusted EPS guidance of $1 65 to $1 71 Euro establishing our Q2 earnings report.
Finally, we remain on track to reach our 2025 of adjusted EPS target of two point that euro.
That concludes our remarks I will now turn decision over to Q&A. Thank you operator back to you.
Thank you very much.
We will now begin the question and answer session.
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Jonathan Biller roster.
The first question comes from Andrew.
From Barclays. Please go ahead.
Great. Thanks, very much everybody.
Maybe to start off you mentioned some of the <unk> pricing actions you are in the process of taking should set a nomad up for a strong start to 'twenty three so I guess two questions on this first.
Does this mean that there's.
This incremental pricing move.
It has been sort of fully negotiated and agreed upon at this stage with retail customers or is there still work to do on that front and does that suggest that you'd be in a.
I hope to be in a position to start the year I guess to continue on with the margin recovery that we started to see in the third quarter and then I've got a follow up.
Thank you Andrew well, it's very simple I think we've made a lot of progress already on Norway, three but it's you know you still have some negotiations that you can imagine you know these are not necessarily easy negotiations I think theyre very fact based negotiations.
But overall, yes, we made a lot of progress.
I think there is still some.
Work to do and the objective, which we definitely believe is achievable issues really started a year and a very.
In a very good position for next year and start when you read the position of it.
A very good position and I don't know if you want to add anything else no I think to the second part of your question on Ruiz of we are.
Really going to put us to a very good margin recovery.
As we have already mentioned to you.
Zika the price and we see how we are managing inflation across the board with our customers.
It's really important.
So we have a partnership with the retailers is making sure that you know repricing for inflation.
And then second I know that I think it was last quarter, you talked about at least at that stage and maybe even more recently.
Labor was sort of yet to move price points on the shelf have you seen any any movement on that front and if not you know you talked a lot about market share have price gaps you now reached a point where that is more concerning or have you seen any movement on private label price points at this stage. Thank you.
Well you can imagine Andrew it's a it number one.
One is Europe . So it's a lot of countries. So you have different positions in different countries, but overall, if you're thinking.
It's a moving target. So we are I think we all we are price leaders. So so far we've brought the wrong, 13% priced private label you can think about the aggregate of private label are more in the region.
And the competitors run competitors have increased their price by around 10%. So you see there is a price gap.
At some stage, you know who knows when the and the other thing why do we get to say when they have to increase the price not the decision, but it's very clear that we all are going we were going through the same kind of competitive Oh, let's say framework within the range. The right same the same.
Great. Thank you very much.
Youre welcome. Thank you.
Thank you.
The next question comes from Jason English from Goldman Sachs. Please go ahead.
Hey, good morning folks thanks for slotting ma'am.
Couple of quick questions.
Hi, Doug.
So volume mix came in well well ahead of what we had initially expected just tracking the Nielsen data you guys mentioned you saw some minor pull forward of volume, which it sounds like that doesn't explain all of it.
Maybe you could unpack that a little bit more for us, whereas there just outsized growth in unmeasured channels, all major countries something unique with mix.
I'll call you can drive that part would be much appreciated.
Very good.
I mean overall it effectively I mean, if you recall the conversation we had at the time of the Q2. There was some question mark related to the effectiveness of our pricing and in Q3 were clearly demonstrating that our strategies are executed in all delivering what he wanted to see where the significant contribution from pricing of about 10, 6% okay.
What you ended up winning from an organic standpoint, you just seven two and the volume and mix. There was a minus three 4% that breaks down into effectively a negative volume impact coming from the <unk> very much in line with what we had planned for in the high single digit level and at the same time.
Positive mix.
Dan coming across the board from yesterday country.
So overall it back to you what is what's really important for us well see the impact pricing and at the same time, we've got some of the output of mixing it and.
What do you mean by the volume negative impact, whereas exactly about in line with our expectation.
Got it.
Big mix benefit there that's good to know.
Turning quickly to the recent acquisition and the results so far but really your question. This year. One is there anything you mentioned the weather like can you comp the comp next year can we expect this business to grow.
It's part one of my question part two you mentioned this is like the fifth in a row. That's come in ahead of your expectations.
How would you how do you balance some of your comments on like why.
I'm wanting to buyback more stock with the success, you've had with M&A and what I imagine is probably an ambition to kind of keep that going.
Well, thanks for the comment by the way, Yes, we were quite.
Quite proud of our results right now in terms of acquisitions, you know we've been through five and six at including fingers and I think I think it's been a it's been a very good track records and I think we've been very consistent we've been very rigorous.
I think the integration I think every time, we improving the playbook in terms of integration and I think this year at this time for example, with the with the judge graphics. We've we've really invested heavily in terms of people in terms of tools to make it work the right way and it's being up so I think overtime.
I would say, we're getting better and better with that and which means that we are in very good position you know, obviously when when opportunities arise or so to make the right decision that will be that we would be by buyback there will be acquisitions.
Obviously with the same the same objective, which is to increase shareholder value I would put it that way, but what's what's really fundamental russo.
You may remember Jayson I'm backing up.
2016, we didn't do anything because we were really focused on the on turning around the company and quite frankly, it would have been a distraction. This year. For example, 22022 well you know we had the right people things.
Things to do first and I think we all we are in the right position with all core business to them to resume distributions in the meantime.
We would agree with me that any way do media market.
We are very active.
Yeah.
Thanks, a lot guys.
Thank you.
Yeah.
Thank you.
The next question comes from.
Please go ahead.
Good morning folks. Thank you for taking our question.
Looking at your 2022 outlook based on what you just reported.
It seems like your fourth quarter is a bit conservative. So I'm just curious what would cause nomad to come in at the high end it would be a range for the full year and then what would need to happen to hit the Huawei ended up your range.
Got you. Thanks for the question I think as you recall.
Last quarter when we reported on these we in fact do you recognize the fact that there was a level of uncertainty, which led us to a pik interest outlook, having a decision we have made tremendous progress on the pricing that's very clear if I was highlighting some elements of uncertainty there and this is why in fact, you are maintaining the guidance despite the.
Very good performance that we had over over do you see just a matter of argument than either the fact that we are well along in some of the negotiations and some of the market, but you have not yet closed he jumped a few markets that the prime reason.
Thank you for that and then one of the biggest concerns we hear from investors right. Now is just on potentially your retail partners carrying less inventory. This winter just given the rise in inflation in costs that they're seeing.
What are you seeing from an inventory perspective with the retailers have they given you any indication that they might pull back as we go into the winter any color here would be appreciated. Thank you.
Yeah at this stage to be to be fair, we haven't heard any of the east I think there has been more conversation around probably primary pricing at this stage and if anything we benefited from a prioritization at yearend as we have seen a picky, how we clearly did in the third quarter and then we see the fourth quarter.
Moving forward there is a clear trend towards frozen food reached really become a game, it's not a category of focusing a context, where the inflation is hitting many people. There. So so far we have the same thing, but I have to say nothing may change in the future, but that does have this very stage. We haven't had any of these I mean from all the data.
Thank you I'll pass it on.
Thank you.
Okay.
Thank you.
The next question comes from John .
From Mizuho. Please go ahead.
Good morning, Thanks for the question.
Good morning, John .
Maybe first off for for so many are wondering if you could discuss the enterprise wide transformation program and there was a pretty big step up in Q3 and those related expenses I think are now somewhere around 45 million euros.
Sort of like 2021 can you just talk a little bit to what you accomplished with that program. Thus far next steps in the evolution there.
And then just given the magnitude of expenses I imagine don't want to quantify savings benefits, but can you comment qualitatively at least in terms of the benefits structurally when we can expect those benefits to sort of ramp from here.
Good morning, John Yes, we have started the transformation program now about roughly nine months ago gradually stepping up the teams and something the intent is really to take the company to a different stage from a digitalization standpoint, and really leveraging our scale and to enable us primarily and frankly to enable us to make better.
And faster decision with a higher quality information on all fronts with a supply chain, whether it is customer whether it's about the consumer and our commercial operations and saw so where we are getting right. Now is really moving phase by phase on the project. We've completed a significant phase right now which is called the design phase before we move into a more.
Production mode in terms of executing the plan. So the savings are really going to be two fold. One is purely cost efficiencies as we really create scale by standardizing and simplifying operations and the second element that saving will be efficacy and accelerated to an acceleration of revenues. It through if you want at the same time revenue growth acceleration by.
Identifying better sources of growth or potentially frankly, winning stronger with a retailer by 50 getting much more granular on where we can make the difference in store on the different product line and so on I mean, we are in the middle of the stock of the exhibits you see of implementation.
Impact of this having we'd be at a much later stage probably jumped into next to al to use them in probably 2025 onwards, but that is really that it is really within the implementation of the entire project that youre seeing these expense being incurred.
Okay, Great and then just the follow up.
Think about 2025, you maintained the EPS target of up to 30, and I guess going back to Jason's question on M&A, considering the rising rates rather than hurdle rates the political risks across Europe .
M&A opportunities don't materialize in a meaningful way how confident are you in achieving Q30 from organic means organic growth organic share buybacks, what's the confidence level there.
But the comfort the conference the Lumpiness flavor remains the same I think we have the we have a very strong to very strong business model as such has been the leader in it.
In our grid category I think this year for example, we've learned a lot in terms of pricing I can tell you is that the company is very different from wage was I think we also have made a lot of progress in terms of supply chain think about the situation in ways, where we went in to fish. For example, the kind of progress. We've made so we make we do we have been doing.
So I can't tell you what 'twenty 'twenty three we're still going to like it is very good. It's a very very strong learning company and that you know we can see that every time, you know, we're bringing something new or the all these challenges. So organically you know I think we with a category with all leadership with no blending know people quite frankly, I really again, though we have what it takes buybacks.
It will definitely be part of it and to your point I mean, they were going to keep the same discipline, we're not going to change I mean, there is not an ego game, that's very clear, it's all about value creation, but what we believe is also what we have what it takes is in that category to be the preferred acquirer.
And things will happen because you know it's a it's a time of dislocation and what I've learned in my life and M&A is during dislocation things happen.
And we just have to be present and to be available to you to do the right thing. So I really believe that the algo reasonably the same might change between the core business buyback and M&A, but all these ingredients. We know we love we play you know this.
They they will play a big role in the between now and 2025 very clear and that's what makes me confident for the two thirds of your EPS guidance.
In Germany, if I'm, if I'm in the math I mean to say that the name of the game is going to be cash flow and on that one we the focus has not changed at all and you've seen the step up if you don't see improvement.
You'll see that in the fourth quarter as we go and it is going to be through that that this we will have the flexibility to frankly.
Okay.
We saw it in the best way to get to that number. If you asked me why confidence it because the gas the cash machine is fully intact. We continue to focus on generating cash flow and even if we have to make some priority completes you're rightfully to support the operation as we go and she has really continued to generate the amount of cash that you have January to you Beth and Don and I'm not sure.
But we have been extended to 2028 2029, which is our really believe is a big plus during these there even at that time.
Okay. Thanks very much.
Yeah.
Okay.
Thank you.
The next question comes from Peter Saleh.
Please go ahead.
Oh, great. Thanks for taking the question I just wanted to come back to the conversation around costs.
As mentioned, you're you're fully covered for 2022 and you made some good progress on 2023 I'm just can you give us a sense on your progress uncovering cost for 'twenty three I mean in a typical year or are you for this year are you in line with that are you a little bit behind are you ahead, just trying to.
And your thought process on in all your contracts are covering for 'twenty 'twenty three at this point.
Yeah, we are winter had actually versus the prior year and clearly the intent for US was twofold, one is to secure supply.
And the best we can and the second one was to be the best placebo visibility.
Two oh, let's say sales organization, but equally important to the retailers to make sure that we have that clearly are both a significant part of the year will cover the next year. So there are some elements, where we are well ahead for the next year. I mean, you do have a fish or energy and there are others that are clearly more difficult. If you want to cover from an availability standpoint.
No because usually they are no longer term contracts that dairy and poultry and so on but all in all if you benchmark US. This is a year ago. The prior years, we are well ahead versus where we are the intent is frankly to clearly go beyond that 50% coverage by the end of the year. So that we have effective a significant portion of the year, coupled with I think we should be well ahead of that.
As we enter into 2023.
Okay. Thank you that's very helpful and then just.
Lastly is there any signs that inflation is moderating or just topping out and then you guys can see from what you were looking at this point that suggest we could see some more moderate inflation or are you now going into 'twenty three.
We see moderation actually a softer increases in many many ingredient primarily jump on commodity.
But you know our portfolio of products is quite complex, we have some commodity but we have I think you're leading protein we have fish, where poultry we have daily we have eddie below it and so on which are clearly borrowing in a different element. There. So all in all we see effectively an overall softening of the inflation, but steel inflation is there with some category continues.
To be strong I mean energy of course, but some others are clearly suffering down as we see which is a good sign now at these very said it's too early to tell you to give you a number but effectively at least there are some moderating signed on some parts of the portfolio, which is quite encouraging.
Yeah.
Thank you very much.
Youre welcome.
Thank you.
The next question comes from Robert Moskow from Credit Suisse. Please go ahead.
Hi, Thank you just wanted to try to hi, there I just want to make sure I got my modeling right for for pricing for fourth quarter. My understanding is that that will have you will have another increase maybe of 10% to 15% in the quarter and then also there's probably some some <unk>.
Icing actions from third that are not fully in the market yet. So I have you you know over 20% for pricing in our in our model is that in the right ballpark and then a quick follow up.
A bit lower and because actually what we've done is as we as we discussed one of the things we got done in order to reflect the element of uncertainty of the realization of the pricing was to apply a judgment call on timing of execution. Some of the market are one time some of those a week later and as well on the depth of the <unk>.
<unk> when we need some time to execute some of the pricing, we'd and increased promotional support to stay competitive during transition time, so is going to be a bit lower than the number that you have.
Okay, and then maybe I can also understand what that means for gross margin.
Compared to last year are your gross margin was 26 and a half last year and you had the I think the full impact of the acquisition, which.
Maybe you could tell me it is the acquisition dilutive to gross margin in fourth quarter, just because of seasonality and now if you look at your gross margin for fourth quarter. This year.
You think he can do better than last year Hum.
Understanding also I think the acquisitions probably ahead of your expectations.
But the reality in the fourth quarter effectively that's C. You know the business is cyclical when we do Q2 and Q3 very strong in the area and the Q1 and Q.
Q4, a bit lower and so I think at Q4, I think it's probably the lowest of the quarter in the in the historical cycle. So there is an element of dilution, but if you. If your question is versus year ago actually there has been improvement if you want to on a on the on the gross margin overall I mean from the from the advantaged businesses now he's going.
B part of the total as you know is when do we get into Q4, because he's gonna be part of the organic.
For the organic forecast as we look for as we pull up but there is effectively an improvement that we would see overall.
Overall for the overall company do you think you'll improve versus year ago.
Yeah, because don't forget that to thinking about Q4 as the advantage will be part of the base I mean with you. We'd be included now we have completed before the fourth quarter and it would be included in the base I mean over there so you're over a year in total if you want from a margin standpoint, given the fact that there is a good trend in the base and positive trend as well.
On the advantaged over some point.
Great Okay. Thanks.
Thank you.
The next question comes from John .
C. J S Securities. Please go ahead.
Hi, good morning, and thanks for taking my question great quarter.
The fine you what you brought the prospect of regaining share.
But I think you mentioned that with the price increases your value should be flat to down.
I was wondering what when does that trend bought them out.
The catalyst for that to happen and does that depend really on competition based on the pricing to catch up or or something else going on there.
No I don't I don't think at this stage everything else I think it's very clear I mean, you you heard me, saying.
10% book competition, 13% fruitful for us So I think that's a that's a big impact in terms of its normal and I think we need to keep the same discipline and when those are going to change. Our I think we are pricing for inflation, we off price leaders and well we at some stage people if they stay there under the same.
The same terms ourselves and then you obviously the pricing they shouldn't have the same kind of pricing. So they will come when John I don't know that's a by definition I don't know, but it's more it's temporary by nature.
Second piece is is less elasticity, but everything being equal what we've seen is it's less negative than what we felt probably because it's across the board in the food industry, where everything is he is increasing and then the fun.
The Beast and its going to take more time, but it's normal would be the normal kind of business. It's all one action above above and beyond pricing.
No. We have we have we are developing a very strong you know toolkit in terms of revenue growth management with things like price bonds. So we're coming with new Skus with the right price point for them for the for the funding for the consumers and we're also developing a new range often offer let's say value value value skus.
In terms of which would be partly fish, partly other things, whereas obviously a high quality, but obviously at the same time, but then there's potentially more affordable. So that we can obviously make sure that the people that are let's say impacted the most by the crisis.
Stay with us so it's a combination of short term oddly older people, but also obviously definitely so it's you know hands in the in the future. So that's and that's you know very much of the playbook for it for a leader and that's our that's our job and that's what we're going to do.
Yeah.
Okay, great. Thank you and send me a question for you what are your interest expense expectations heading into 'twenty three you know with the new term loan.
And assuming rates continue to climb.
With that backdrop are you expecting debt pay down to take more of a priority here or how should we think about that.
Yeah, we will be closing a junk tomorrow the the loans that we give them all of the detailed by then but directionally effectively are we will see a slight increase I mean overall on an average basis I mean year on year, but Kelly manageable with you within the overall performance that we have and the commitment we have to decrease our labor.
Over time, the very important thing for us was really around securing the financing.
And then from an interest standpoint, effectively we will see a slight increase but we have other levers I mean, we you know cash management system that will enable us to continue on the on the way to deliver the cash flow performance we want.
Got it. Thank you if I can slip another one in there just you had mentioned release of working capital and conversion rates of EBIDTA closer to historical norms.
Isn't that really is the path you could do better than that if if you're releasing working capital or is there something else there.
That's taking that cash.
No I think the same strategies, if you want to have being applied they've been very successful in the past I mean, focusing on different elements. We have had a number of let's say decision to be made this year and some external event the decision with the support of the operations, which has translated into a 50. Some cachet because you have seen them in the past and at the same time, we have some changing.
Let's say directive relating government directive relating to the management of our payables, which is called the U T. P. D. I mean, as we as we talked in the earnings.
All of that he's getting gradually behind us and the Q4 performance from a from a cash flow in Q4, we'd be consistent with what we have seen in the past until all of the let's say lever that fully in operation there to get us back on to the performance. If you want from a cash flow performance.
Understood. Thank you.
Right.
Thank you.
The next question comes from.
From UBS. Please go ahead.
Hi, Good morning. Thank you for the presentation I'm I just have a few questions I'll take them, maybe one by one and in turn if that's okay.
Hum in terms to refine on saying.
Just in terms of having kind of everything in Europe , what would I be correct to assume that kind of 130 million. It is the additional tranche and then the U S. D will be a the kind of 860 million, you're saying less the.
130 million euros and that would be the remaining gear at the $86 million convert it is that the two components to get to the euro amount for that all the time that would be.
Yeah. The idea was affected to leverage the market condition in order for us to actually optimize the overall, let's say Costa will intend typically realize a refinancing.
I suggest that frankly, you wait until tomorrow, and we're gonna be clearly closing the deal and we will announce all of the details of the of the terminal with the refinancing and then we can answer your question in more detail then.
Okay, Perfect and then will you also share any detail tomorrow around hedging on the floating rates as well.
Yeah, I mean, we will be the effect you mentioned some elements I mean relating to I mean on the one that we'd be having different on how we've been managing over all the let's say overall valuation I mean of the other on the new loan terms versus the alternatives.
Okay perfect. Okay, I'll I'll I'll wait on that then and then see what Chad. Thank you and then in terms of the organic growth.
I was wondering would you be able to split out kind of revenue contribution between knowing that in F. F. G. And then and then also kind of the relative organic growth splits.
Clearly the seven percentage of blended between the two.
We are managing the business is already showing somewhat on getting standpoint, and so frankly.
This is part of the way, we don't disclose that information because clearly we're running no matter.
Leveraging different regions different categories different type of product and so at this early stage I mean, we did it with the good performance, we have delivered and we have given you the breakdown between pricing volume and mix.
Together and I think that's been a contribution for broadly most of the category.
Okay.
At least would you ever di can you say, whether nomad grew more than which one grew more and contributed more to the revenue growth was it no matter where F. G I.
Ice cream.
We don't we don't disclose category information.
Okay.
Thank you and then would you be able to just clarify did I hear you correctly. When you said, 98% of fishes. So responsibly and the goal is to have this 100%.
Yes.
Okay, Okay, but when you say responsible sourcing does that include kind of the the kind of procurement from Russia I'm guessing.
Even fishery.
So you're sourcing from Russia that that's still obtain responsibly, albeit you're trying to diversify away for different reasons.
Well the fish.
Source from Russian waters number one is today is compliant with the MSC, which is which is important but that's one thing.
The reason to diversify away from wide fish and not limited to web to pick from Washington will just by the way, but from from from White fish is more fundamental which is basically.
You know there is a high demand for fish that demand is increasing it's not limited to Europe by the way and the supply remains stable, which is which is normal by the way. If you want to keep you know something sustainable I mean, you have.
You have to make sure that your biomass remains stable, which is exactly what happens so from that standpoint, we already have decided that wasn't head of the Ukraine wall to diversified away from from from the from the from Wild fish and that's the only thing that we have done is to acceleration of the movement in that.
Exactly you know what happened in Norway, we've been able it takes a bit of time people think that you know it's going to it's going to happen in the in two weeks the in real terms in the business you know it takes a bit more time, but we've been able to really I mean, it's a contract with long term with the with fisheries you know with with with Fisheries.
Fish in your in the Vietnam high quality buzzer could find gas use and now which is great is we have the ability to ramp it up you know a big like the way we want over the next or the next three years, so which is really great. So that's why I can't tell you confidence, yes, moving from 19% to 1%, 100% makes sense.
Whether it's coming from farm fish oil from wide fish and definitely there is an intent to increase the part of Fanfish fault.
Aside from the geopolitical considerations.
Yes.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Mr. Michael.
For any closing remarks.
[noise], okay, so the record inflation and.
The Ukrainian war have presented us with difficult hurdles.
But we are encouraged by our great people, a fruitful partnership with our retail customers and suppliers.
Oh loyal consumers.
We have refinanced our debt.
Address the supply.
The cost for this year price for inflation.
And much of next and when.
We are ahead of schedule on a successful integration of our latest acquisition.
We expect a strong end of this year, our revenues based on strong pricing and easing COVID-19 related comparison.
And with that I'm thanking you for your timing of attention and back to you operator.
Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Yeah.
Okay.
[music].