Good morning and welcome to the Nomad Foods' First Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Anthony Bucalo, Head of Investor Relations. Please go ahead.

Hello and welcome to the Nomad Foods' First Quarter 2023 Earnings Call. I'm Anthony Bucalo, Head of Investor Relations and I'm joined on the call by Stefan Descheemaeker, our CEO; and Samy Zekhout, 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 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. 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. 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 cost, share-based payment, and related expenses as well as non-cash FX gains or losses. Unless otherwise noted, comments from here on will refer to those adjusted numbers. With that, I will hand you over to Stefan.

Thank you, Tony, and thank you for joining us on the call today. Nomad had a solid start to the year as our sales momentum from the second half of last year continued in the first quarter. Additionally, our teams did an excellent job executing the strategies we announced at CAGNY in February. I'm pleased with the performance of the great people across Nomad who delivered excellent results to start the year off right. Last year we faced a difficult environment brought on by post COVID inflation and the outbreak of the Ukraine war. We adapted to confront these challenges last year and put new plans in place this year to make Nomad even more resilient and positioned for growth. Overall, we believe our Q1 results demonstrate that we are on the right path to accomplish our goals. In Q1, our revenues grew organically 8%, another sequential quarter of improving sales trends. The benefits of our pricing strategy and disciplined supply chain management were visible in improving adjusted gross margin and EBITDA margin, both of which grew 100 basis points year-on-year. We also delivered adjusted EPS of EUR0.46, which grew 7% in the quarter. As we shared at CAGNY in February, we have three central priorities for this year. Our first priority is to strengthen our commercial approach with additional A&P investments for our brands while adding affordability options for stressed consumers. This includes not just innovation, but renovation for many of our best selling products. Our second priority is to leverage the efficient savings from our world class supply chain to help fund growth. Our final priority is execution of our revenue growth management strategy, designed to recoup costs through pricing and maximize the value of our portfolio. I'm happy to say we are on course for all three.…

Thank you, Stefan, and thank you all for your participation on the call today. Turning to slide six, I will provide more detail on our key first quarter operating metrics, beginning with reported revenues, which increased 5.8% to EUR775 million, up 8% organically. First quarter revenues were negatively impacted by 2.2% of unfavourable effects. We saw elasticity in our top line performance as volumes came under pressure due to price increases and the persistent price gap with private label. These volume declines were expected and are in line with expectations as we aim to recover cumulative cost increases from last year and this year. These volume declines impacted our market share, which was off about one point for the quarter. As we communicated at CAGNY, we expect market share trends to improve sequentially this year, driven by our innovation efforts on affordability as well as stepped up A&P investments. We delivered a strong margin performance this quarter. Adjusted gross margin was 28.9%, 100 basis points increase versus the prior year, reflecting the successful recovery of higher input costs through pricing. We continue to navigate an inflationary environment. In Q1, we saw a benefit in the cost of goods sold from the tail end of cover position from 2022. Looking ahead, while we have strong cover now in place for the rest of 2023, the full effect of inflationary impact on COGS will be realized as the year progresses. As we look out to the rest of the year, we expect to deliver flat gross margins supported by price increases and cost discipline. Moving down to the rest of the P&L, our adjusted gross profit grew 10% to EUR224 million for the first quarter. Adjusted COGS increased to EUR551 million, an increase of 4.3%, up EUR23 million versus last year. Adjusted…

We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Jason English with Goldman Sachs. You may now go ahead.

Hey, good morning, folks or perhaps it's good afternoon where you're at. A couple of quick questions. You mentioned, I think, Stefan, this is in your comments, you plan to recoup the inflation incurred in 2022 and 2023 collectively by year-end. My question is, are you expecting to have more list price increases or I believe you've tapered some trade on top of this price increases? Is the anticipation that you'll be able to pull back on some of that trade to get more effectively net price realization by year-end?

Well, it's a bit of a combination of everything to your point. At first -- the first piece, Jason, we are well, you know, we are well embarked in terms of recovering the price increase. Don't forget, you know that it's something which is obviously started last year. So we have obviously the positive impact of 2022. We already had some negotiations, positive negotiations early this year. So what's left is much lower. And don't forget, at the same time, you know, the inflation input cost inflation has somewhat decelerated in the meantime, which is probably, you know, deceleration is probably higher or better than anticipated, which helps us as well. So that's the piece. That's the macro piece where we stand. So, yes, we're still left with some he and there you know some negotiation but it's nothing comparable to what we had last year. And then with that, obviously you're going to the consumers, consumers is about obviously promo and all these things and so it's much more about revenue growth management than it has really become, you know, a big and it's becoming more and more a big muscle for us right now and also for the coming months and years. So that's where we stand. But maybe I can -- you can complement Samy.

Yes, Stefan, I think you said most of it. The one thing Jason I would insist on is actually the pressure for the coming quarters is actually much lower than what we had planned, given the what has been executed so far and what we are seeing from an inflation trend. Stefan was alluded to the point of, let's say, revenue growth management strategy, which we are really now leveraging full speed across the market to really make sure that we execute some of these interventions, if you want, on, let's say in the right market and in the right category to remain competitive versus the rest of the market as well. So clearly we are on trend, if not a bit better on that.

Okay. And you also commented in prepared remarks that private label gaps have not yet narrowed. Is that like they haven't yet narrowed all the way back. Are they narrowing? But just are you seeing progress on that front, I guess, is the core of my question. And with the cost pressure perhaps moderating a bit, does that influence your expectations of how far you expect private label to go in closing those gaps?

Well, it's a complicated question, Jason, because obviously it's not, you know, it's other people. So we can't, you know, second guess what they're going to do. The only thing we can say is we are all subject to the same, let's say, constraints. The markets -- the market is the market. You know, the fish is the fish, the vegetables are the vegetable. So our decision was and it still is, by the way, to make sure as brand players, as brand leaders, we want to obviously maintain our gross margins so as to be able to reinvest. That's the very essential for a brand leader and that's what we're going to do. What other people might decide to do with their margin is something else. We haven't seen, you know, overall yet, you know, a very significant narrowing down of the difference. It may come may not come, but probably, you know, you should ask them at some stage.

Indeed, if I get a hold of my will. Thank you very much. I'll pass it on.

Thank you, Jason.

Our next question will come from John Baumgartner with Mizuho Securities. You may now go ahead.

Good morning. Thanks for the question.

Hey, John.

Hi, John.

First off, I want to walk through the Fortenova assets as we're heading into the peak season there and especially as you're lapping a tough comp on the revenue side. Are there any fundamental or structural improvements or enhancements you could highlight that you've implemented that are poised to benefit operations this year on the revenue side?

But to your point, last year was a really a great year. And believe me, we have all the intent to have another great year this year with or without the weather. I think there are things that we are very much in line with the business model, by the way, we've improved. So first, you know, you have a huge, let's say, number of freezers and some were outdated. And as expected, you know, we're improving all these freezers. I think it's memory is right. You have around 120,000 freezers across the older region, which is a great route to market, as you can imagine. And some, you know, had to be out there and some were outdated. And as expected, we are changing them, which is great. And it's going to help us and with the retailers and with the consumers, that's the first piece. The second piece is we are also improving, let's say, the quality of the factories. That was also part of the plan. And the third piece, which is something we have learned since last year, is you probably need to, you know, to be ready on time, more ready on time in terms of inventory of finished goods, because it's another -- it's another game vis a vis frozen food. So you have to make sure that you're going to be ready, let's say, Q1 or even Q4, Q1, Q2 to deliver. It's quite different from frozen food. You just can't rely on Q2 -- on Q2 and Q3 to deliver your ice cream. Last year we had some out of stocks because we hadn't fully grasped that piece. And obviously we're learning. And so that's the third piece of improvement that we are coming up with. On top of that, you know, the team is, well, the team is great, you know, with the Adriatic's. They're doing a fantastic job. They've come up with a new taste considered as among the best new ice cream in the world. And it's, yeah, it's going to come. By the way, we also have opened a new avenue in terms of exports, let's say, to Austria where, you know, you have a very sizable community of Croats there, especially in Vienna. And as you know, we have a very strong distribution in this country. And so if you go to Vienna, I would invite you to go to some of the stores there, for example, SPAR. It's not advertising here, but then you will see some of the Lidl products. And they you know, it's we're very confident it's going to do well. So, yes, very pleased with what we have qualitatively and quantitatively.

Okay. Thanks for that, Stefan. And then just a follow up, I wanted to ask about the A&P spending. Your categories I wouldn't say are impulse oriented, and I'm curious how long you think it might take to convert your investments into increased takeaway. I mean, are there specific programs you're targeting that you're more optimistic can deliver a reasonably fast payback, whether it's trade or messaging? Just any perspectives on programming would be helpful. Thank you.

Yeah, I think we have communicated on our clear intent to step up our investment in A&P. As you have seen, I mean, over the past years, we had taken it down really by trying to optimize the overall portfolio. But it's about time that we reinvest behind the assets that we have. And I think there's a number of things that we are really doing now, which is refueling effectively the level of spending behind our must win battles. We do know that when we invest there, the payback is quite fast and it's strong because the brands are quite strong. But nevertheless, given the fact that the trend has been a bit down over the past year, it's just going to take a bit more time than usual. But clearly that builds up if your sustainable growth as we move forward, investing effectively around equity. I mean, it's very important. The captain is a perfect example of that. We are clearly refueling effect our investment. I mean, there and what pays back a bit faster sometimes is frankly more innovation driven, more effective, targeted to, let's say, coordination between install and equity investment when we try to have a bit of a holistic A&P intervention there where we see faster returns usually within the nine to 12 months, whereas if you want a classic advertising investment on a longer payout there. But we are clearly trying to balance the need for reinvesting behind must win battles that are absolutely critical to bring them back on par with what is making growth strong and profitable and on top trying to leverage any commercial option related to market dynamics. For instance, let's say clearly cost of living intervention or innovation intervention or the element when we have, BASAR, as an example coming up, of course we'll advertise that and that has a clear return, I mean much faster than others.

And you will see stepped up investments starting really end of Q2 and then really Q3 and Q4.

Thank you very much.

Thanks, John.

Our next question will come from Peter Saleh with BTIG. You may now go ahead.

Great. Thanks for taking the question. I just wanted to ask on the pricing plans, I know you had a mid-teens pricing in the first quarter here. How should we think about your pricing for the balance of the year? Do you anticipate at this point in time taking any additional price given you haven't really seen any deflation, maybe some just moderation in commodities? Just trying to understand how you're thinking about the pricing lever for the balance of this year?

Yeah, as we said earlier, the pricing, if you want that is going to come, is actually much less than what we had originally planned for, for the reason that affected our first tranche that has happened in GFM has gone really well and has passed through. And on top of that, if you want, we see, let's say, a lower pressure on inflation that is putting, if you want the coming burden on the need to recover inflation through pricing lower than planned. So clearly at this very stage, it's definitely within a range of pricing intervention that will be much more moderate over the quarters to come. As we see, there will be very specific because this inflation hits, if you're a different category in different markets at a different level, and we try to make sure that efficacy will go wherever it makes sense with the intent as well of taking advantage from an inflation standpoint or the fact that we are hedged at about 80%, as we indicated, and we have 20% on hedge and on this unhedged part, we intend to clearly leverage any positive opportunity in the market in case we have access to input costs at a lower price, which will reduce the pressure for pricing in the next quarters. So clearly on par, if not ahead, and at this stage, much more manageable as we move forward.

Great. Thank you very much.

Our next question will come from Cody Ross with UBS. You may now go ahead.

Good morning. This is Simon Negin filling in for Cody Ross.

Okay. Hi, Simon.

Hey there. You haven't repurchased shares since first quarter of last year as you focused on securing inventory. When do you anticipate share repurchases being a bigger part of the capital allocation process again?

Well, we definitely have been consider share repurchase as part of our capital allocation strategy, as we had mentioned many, many times. The focus over the first quarter was clearly to stabilize the business as we are clearly getting into, let's say, inventory and receivable and payable at the time management at the time were executing pricing and securing the supply. As now we're getting out of this, let's say clear transition quarter. Now we clearly have the next quarter to look at different options. I mean, appealing to us whether this is effective share repurchase or other capital allocation strategy. But share repurchase remains very high on our agenda and we've been opportunistic on that. And as market goes, we will effectively execute our strategy as we move forward on that.

Great. Thanks so much.

Our next question will come from Steve Powers with Deutsche Bank. You may now go ahead.

Hey, good afternoon. I wanted to ask about your manufacturing savings that you had, you targeted to step up in manufacturing savings entering '23. And I just wanted to get a status check on progress there, how much you've already started to receive and that we've seen in the first quarter results versus how much is yet to build over the balance of the year?

Yeah, definitely. The program is in place. We had different taxes, if you want of development there. One was the pure manufacturing efficiency in the different sites that we had clearly leveraging all the opportunities to implement our lean program activities in order to clearly reduce the consumption cost overall, taking into account the volume dynamic as much as effectively the utility and the efficiency dynamic, the productivity dynamic that we had. The program is well in place and delivering good savings in line with the plan and it is a well spread plan over the quarter. So what you see in quarter one is going to spread over the coming quarter. There was another range of intervention that we had made which was more geared on product formulation. And if you are ability to meet the market needs in a very effective way and within that plan, we have made some of the intervention that are gradually being implemented. And you can understand that whenever we touch product, we touch at different parameters such as packaging or go to market and pricing and others, and those are being deployed as we go. But very clearly the investment and the focus is in there. Great team there that is implementing that. The inflation, as we said, I mean is clearly going on the right trend. I mean, at this stage and we have taken opportunity of the market opening to get to have access to input costs at a lower price. And so the saving flow is coming as planned and is reflected effectively on our overall performance as we move forward in line with our expectations.

On top of that also add, you know, logistics.

Yeah, absolutely.

Where we're making a lot of progress savings and still a lot of opportunities ahead of us.

Okay. That's helpful. Maybe if I could the other you'd also communicated at CAGNY, you know, a relatively sizable step up in innovation spending. And I guess similar question, you know, how much of that have we already seen? How much of that is yet to come? And just any early feedback on sort of the return expectations on that investment?

The first one, as you may know, Steve, is about Basa or Pangasius in continental Europe. It came out of necessity last year with obviously the outbreak of the Ukraine war. But we've really moved from necessity to an opportunity for us. And so since something like end of Q3 last year, we really started to develop that part of the new business, which is farmed fish, which is great by the way. The product is great. And now we have developed and launched Basa in four countries, Netherlands, UK, Germany, and France. And it's doing well. We're making a lot of progress. We're planning to have another three countries by the end of the year. And that's innovation because it doesn't replace new products. It doesn't replace card or product. It's really something new and that's a big innovation. The second piece is more about affordability and we also have some very interesting, let's say, new innovations, especially in fish. So these are the two, the first two pieces where we have invested more to come. But let's say and one thing interesting as well, you may say, it's an innovation or not innovation, but the pizza in France, we were not present in France. We think we have the right reason to be present with pizza in France. We have the right distribution. Goodfellas is a great product. And let's face it, you know, there for reasons, you know, that are, let's say, linked to competition. There was a big wide space. There was a big wide space of available there. And we've seen, you know, we've -- we had the conversation with the retailers and they're very open. And then we have now you can see Goodfellas Pizza with [Cafu] (ph), for example, in France and with other retailers. So that is also, you know, innovation. I love this innovation because they don't cost anything, by the way, because it's available. It's they're just not present in that specific country, which is great. The other piece is especially, you know, during this -- cost of inflation -- cost of living crisis is renovation. I think the big piece for us is to make sure our products are brand products are going to come up with superiority in terms of packaging, in terms of taste and all these things. And that's, you know, short-term and mid-term that's absolutely critical for us. So these are the big pieces where we have invested more to come, obviously before, let's say, in the coming months for 2024 and onwards. But these are the big themes we think are very much adapted to the current situation.

Very helpful. Thank you very much.

Our next question will come from Rob Dickerson with Jefferies. You may now go ahead.

Great. Thanks so much. Apologies that you already went through all this. I hopped on late. So just kind of a question around trade spending promo kind of vis-a-vis the gross margin. Clearly in first quarter gross margin was great. I think originally come out of Q4, you had said there would be like the sequential progression in gross margin. But now gross margin is still flat. So it doesn't seem like there's probably sequential progression really still occurring because a lot of it was front end loaded. Do you feel like kind of where you see the marketplace today? Kind of what you had budgeted, I guess, in trade promo kind of is steady or do you think you might need a little extra room as you get through the year to maybe lean in to make sure you're getting the velocities? And again just asking kind of as it pertains to the kind of the delta and the gross margin flow. That's it. Thanks so much.

Yes. Hi, Rob. Yes, it's very much in line, frankly, with what we were expecting. I mean, the one thing, though, that we have looked at more thoroughly in the context that we've been facing with a good quarter behind us is effectively whether looking at our revenue growth management strategy, whether there could be some surgical intervention to be made on some key country category combination where we are clearly running behind from a share momentum standpoint and looking at opportunities to do so. Don't expect, if you want, moving forward, a massive change there, but much more targeted intervention to really, let's say, maintain a price gap that is, let's say, conducive of growth overall or potentially opportunity to reignite growth on some of the categories where clearly we've taken pricing and we're clearly we may have to be more competitive from. Otherwise this continues to remain the category that is heavily promotion driven. We clearly have a very strong promotional plan. I mean, across the rest of the in the vast majority of the market. But wherever we have opportunity to be more surgical, to ignite a stronger growth and regain share momentum, definitely we look at that. But as I said, it's going to be more on a country by country, category by category basis.

Okay, great. Maybe just a quick clarification follow up. When you talk about the strategic pricing, you know, kind of depending on end market positioning, is that kind of a way from Fortenova. I just think of, you know, kind of handheld ice cream, you know, in Eastern Europe, at the beach like people aren't really buying on promo. So it's really you're kind of talking more about those core categories, really more frozen fish, frozen veg, maybe. Is that right?

Yeah, we're looking at absolutely we're looking at that. I mean on Fortenova we have actually started the work as well to see if there were opportunities there. More on the growth side, profitable growth side than anything. But I would say the majority of the emphasis on the more core categories, the non-ice cream category.

All right. Great. Thanks, Samy.

Thanks.

[Operator Instructions] Our next question will come from Jon Tanwanteng with CJS Securities. You may now go ahead.

Hi. Good morning. Thank you for taking my questions and congrats on the strong results. Samy, I didn't know if you addressed this previously, but did you mention how you're expecting gross margins to trend through the quarters. Just on a cadence perspective? Is there anything different from your normal seasonality or are there some puts and takes that we should be thinking about?

No, we maintained the guidance, which is effective about flat margin for the year. The bump we had in Q1 was expected and is going to then deliver. I mean, it's going to lead us to deliver in line with expectations on that.

Okay, great. And can you give us an update by region, what you're seeing, if there's been any surprise in any of your end markets? I know there's been protests in France that have been fairly disruptive to other industries. Just tell me if there's anything that that surprising, either good or bad, in the countries that you're in.

No, nothing, if you want of a surprise. I mean pretty much in line with the expectation if you want on that one we never we had actually great customer service I mean performance I mean overall and the spite of the performance over the quarter has been consistent with our expectation as it shows, if you want on the on the gradual share development that we see, but nothing of significant.

The difference, let's say, region by region by definition. But they're not -- they haven't come up with any surprise region by region.

Okay, great. And then last one for me. Can you give us an update on green cuisine? Number one, how that's doing? And number two, just how your sustainability initiatives, which you've had a lot of and talked about a lot of them, how have those been received by your retail partners and your consumers, your end consumers? Is that something that even comes up on the radar in times of stress budgets and is that you're pushing. Just help us understand where you're positioning is on.

Okay. Let me start with the two questions. Actually, Jon, if I understand you, well, the first one is about Greek cuisine, actually, in terms of green cuisine. You know, last year, you know, to your point, I mean, we had a flat sales in the category declining by 9%. So to your point, I think we I mean, we had a share gain of 2%, which is we are the number two player in frozen food plant protein. This year, so we're growing faster than the others this year. We up slightly in terms of market share with a country like Germany, for example, performing extremely well, growing at 10% and share up 10%, Italy is up as well. So overall, you know, we're very pleased. This being said, when you take you know, I think when you take the category, it's a very interesting category. And we really believe that the category has a long-term role to play. But I think what we also have seen is, is after a lot of excitement, people started to reconsider. Their habits need to change, which is not unusual, by the way. I think a lot of categories have been through that kind of trends. And I think it's up to us leaders to raise the game and to come up with the right products, the right combinations, the right price. And so do I believe that there is a long term future, as I said? Yes. But definitely, you know, I think the consumers remind us, all of us, by the way, much more than others or for others, by the way, that, you know, it's a never take people for granted, which is great. That's exactly what we need to do in terms of in terms of sustainability. Well,…

Got it. Thank you. Thank you very much, Stefan. Very helpful

Please read the report. It's really interesting.

This concludes our question-and-answer session. I would like to turn the conference back over to Stefan Descheemaeker for any closing remarks.

Thank you, operator, and thank you for your participation on today's call. We got off to a solid start for the year and we remain on track to deliver our promises. We believe frozen food remains the best value for consumer across food and we remain pro category leaders. We are focused and committed to delivering our ambitious financial objectives for 2023 and beyond. Thank you all. Operator, back to you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.