Nomad Foods : Q3 2021 Earnings Transcript

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Taposh Bari: Hello and welcome to the Nomad Foods Third Quarter 2021 Earnings Call. I'm Taposh Bari, Head of Investor Relations and I'm joined on the call by Stéfan Descheemaeker, our CEO and Samy Zekhout, our CFO.

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Taposh Bari: On our call today, we will review our financial results for the quarter and conclude with a question and answer session.

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Taposh Bari: For those planning to ask a question, we ask that you do so using the Zoom raise hand feature.

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Taposh Bari: Before we begin, I would like to draw your attention to the disclaimer on slide two of our presentation.

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Taposh Bari: This conference call may make forward looking statements that are based on our view of the company's prospects, expectations, and intentions at this time, including consideration

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Taposh Bari: related to the impact of COVID 19. Actual results may differ due to risks and uncertainties which are discussed in our press release, our filings with the SEC, and this slide in our investor presentation, which includes cautionary language.

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Taposh Bari: We will also discuss non-IFRS financial measures during the call today. These non- IFRS financial measures should not be considered a replacement for and should be read together with IFRS results.

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Taposh Bari: Users can find the IFRS to non-IFRS reconciliations within our earnings release and in the appendices at the end of the slide presentation available on our website.

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Taposh Bari: Please note that certain financial information within the presentation represents adjusted figures for 2020 and2021.

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Taposh Bari: All adjusted figures have been adjusted for exceptional items, acquisition related, share based payment and related expenses, as well as non cash foreign exchange gains or losses.

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Taposh Bari: And all comments from here on will refer to those adjusted numbers, and with that I will hand the call over to Stéfan.

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Stéfan Descheemaeker: Thank you Taposh. Thank you all for joining us on the call today. Earlier this morning we reported third quarter financial results and reiterated our plans to deliver double digits adjusted EPS growth in 2021.

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Stéfan Descheemaeker: These results built on the exceptional performance we achieved last year and are consistent with the business update that we provided a few weeks ago. As you know, the macro backdrop is quite challenging for many in the food industry between tough comps, inflation, and supply chain disruptions.

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Stéfan Descheemaeker: While we would prefer a more accommodative environment, I am proud of how our team has responded and the fact that we are on pace to achieve another year of record results in 2021.

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Stéfan Descheemaeker: With that let's begin with the third quarter financial highlights. We achieved revenue growth of 4% driven by the acquisition of Findus Switzerland and favorable of FX translation.

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Stéfan Descheemaeker: Organic revenues were up mid-single digits relative to the third quarter of 2019.

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Stéfan Descheemaeker: We declined 1.4% versus the prior year to the anniversary of elevated demand and normalizing category trends.

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Stéfan Descheemaeker: Adjusted gross margins declined 240 basis points or 200 basis points on the like-for-like basis - when excluding dilution from Findus Switzerland's, whose initial gross margins are below those of our base business.

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Stéfan Descheemaeker: Adjusted EBITDA grew to 113 million euro, representing 4% growth versus last year and 9% CAGR versus 2019.

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Stéfan Descheemaeker: And finally adjusted EPS was 35 euro cents per share, representing 17% growth versus the third quarter of 2020 and a two year CAGR of 18%.

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Stéfan Descheemaeker: Our third quarter revenues, Adjusted EBITDA and Adjusted EPS were the highest of any third quarter in our company's history and built on the strong results we achieved last year.

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Stéfan Descheemaeker: This performance was driven by several factors.

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Stéfan Descheemaeker: Namely, improving market share trends, discipline cost management and accretive capital allocation. These are defining attributes of our value-creation model that have been key to our success and continue to fuel a performance as we navigate a challenging macro backdrop.

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Stéfan Descheemaeker: As you know, we've been working hard on improving our service levels and capacity situation to return to market share growth.

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Stéfan Descheemaeker: I'm happy to say that our market share expanded in Q3 and has shown consistent improvement since May.

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Stéfan Descheemaeker: While we do still have selected pockets of raw material and supply challenges, our service levels have improved across most of our business.

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Stéfan Descheemaeker: Taking a closer look at the broader packaged food environment in Europe, where vaccination rates are really relatively high.

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Stéfan Descheemaeker: We are seeing consumers returning back to work, and the corresponding recovery in out-of-home consumption. This resulted in the low single digit percentage decline in the frozen food category during the third quarter versus the prior year.

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Stéfan Descheemaeker: As we navigate through this period of transition, we are directing our attention to areas where we have the most control over the outcome. This starts with market share and we are encouraged to see a significantly improving trajectory over the past six months.

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Stéfan Descheemaeker: The normalization of category growth has been compounded by a series of industry-wide supply chain issues, many of which have been well documented.

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Stéfan Descheemaeker: Raw material costs are on the rise, the labor market is tight and supply chains are under stress.

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Stéfan Descheemaeker: Our supply chain organization has navigated this challenge well this year.

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Stéfan Descheemaeker: Resulting in stable gross margins through the first nine months of the year.

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Stéfan Descheemaeker: We expect these macro factors to intensify in 2022 and are prepared to leverage your revenue growth management capabilities to mitigate exposure.

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Stéfan Descheemaeker: As we deliver against our near-term financial objectives, we are also making the necessary investments to support long term growth.

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Stéfan Descheemaeker: Sustainability has been a key strategic priority and an area where we were quite active during the third quarter.

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Stéfan Descheemaeker: As a frozen food company anchored in fish and vegetables, we have a portfolio that is inherently advantaged in helping consumers making better choices when it comes to nutrition and sustainability.

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Stéfan Descheemaeker: you've heard the statistics but they're worth repeating.

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Stéfan Descheemaeker: First, the food industry accounts for a third of greenhouse gas emissions and one third of that food goes to waste.

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Stéfan Descheemaeker: Supported by life cycle assessments, we know that our frozen food brands have credibility, awareness, and scale in helping consumers make an impact on climate change, starting with the reduction of food waste.