Good day, everyone, and welcome to the Nomad Foods First Quarter 2016 Earnings Conference Call. Today's conference is being recorded. On the call today, we have Paul Kenyon and Stéfan Descheemaeker. At this time, I'd like to turn the conference over to Mr. Paul Kenyon. Please go ahead. .
Thank you, operator, and good morning, good afternoon, everybody. Before we start, I would as usual like to draw your attention to the disclaimer on Slide 1 of the presentation. I don't propose to read it out, but do draw your attention to it. With that, I will turn it over to Stéfan.
Stéfan?.
Thank you, Paul. Good morning, good afternoon, everyone, and thank you for joining us on our first quarter 2016 results call. So I will start by giving you a brief update on progress versus our strategy so far in 2016. So turning to Slide 3. I will take a global view of each segment of our strategy in turn.
We're executing our strategy, i.e., to refocus on cost cutting and recent integration of Findus in a very disciplined way, and we're starting to see positive results. First of all, we remain confident in our ability to deliver the projected synergies from combining the Iglo and Findus businesses and our integration process remains on track.
I will provide additional detail later in our presentation, but can tell you that we have delivered just under EUR 3 million in synergies so far on an annual run-rate basis, which equates to around 3 quarters of EUR 1 million in the first quarter.
We continue to make steady progress with the consultation process in Sweden, and subject to a successful completion of the process, we remain on track to seize operations on the Bjuv side by the end of 2016..
As is only to be expected from an acquisition of the skills and complexity, we have innovated some operational issues from the former owners of Findus, most notably regarding project supply from the Bjuv factory, which impacted sales in the first quarter due to drop in service levels.
Action plans are in place to resolve this by the end of the second quarter. Beyond Findus, we continue to see opportunity and believe we're well positioned to execute both, both on synergistic acquisitions in European frozen, as well as broader strategic transactions.
We continue to benefit from our strong leadership position by a factor of 2.7x versus the #2 player.
And while the frozen food market that we're playing in, declined slightly by 0.3% by value in the quarter, we remain confident in the resilience of the frozen category in the face of challenging market conditions and that our strategy is the right one to stabilize the top line.
In that regard, I was pleased to see a further slowing of the rate of decline sales in Q1. .
Turning to our iconic brands. As I commented in my year end back in March, we benefit from high levels of spontaneous brand awareness, averaging just over 80% across our top 7 markets, but we've not done enough to convert that strong equity into improved sales performance.
Following a rigorous review of our agency arrangements, we have appointed a new advertising agency, who will partner with us in rejuvenating all advertising, most notably through the revival of recirc [ph] icons, such as The Captain.
We have already reintroduced The Captain in 6 markets, utilizing previous copy, namely, the U.K., Germany, Italy, Austria, Netherlands and Belgium. And we look forward to running out the successful vegetables advertising that have been piloted in Sweden, Spain in the coming quarters.
As discussed in details on the last call, we have moved our focus onto our must-win battles. And although we are still at early stages, we're beginning to see some encouraging signs. For example, in Italy, one of our must-win battles is our Sofficini savory pancake business.
This show a sales increase of 21% against Q1 last year, driven by a product and renovation launch, which allows these products which are typically fried to be baked in the oven, yet deliver the same crispy coating, thus delivering a health benefit for consumers.
In Germany, where fish recipes were highlighted as a must-win battle, we've seen an increase in sales of 7.4% of the host products, driven by the introduction of salmon variant, a successful pre-gift promotion, and the reinstatement of our Easter Egg advertising..
As we continue to drive for greater cost efficiency for the group, we're moving our media bank to one of the largest agencies in Europe, as we continue to realign and rationalize on media strategy.
The management team remains extremely focused on delivering against our strategy, with a clear priority being the progressive stabilization of the top line, as well as delivering the projected synergies from the Findus acquisition. .
Moving on to financial performance. I'm pleased to report we further slowed the pace of decline in the quarter, with a like-for-like drop in sales of 6.1% versus the abated rate of 7% in the fourth quarter.
This reflects calendar line with the Findus Group for financials, which Paul will explain in a few minutes, and was slightly ahead of internal expectations to be in line with the performance in the fourth quarter of last year..
Adjusted EBITDA margin was slightly down year-on-year to 18.2%, as the impact of volume declines were partly offset by tight control on A&P and indirect overheads, including synergy delivery.
Finally, thinking about the multiple organic growth drivers for the business, I have already talked about the actions that I'm pleased to restore the business to top line growth.
We believe the fruits of that work, including our revenue management program, should begin to show themselves from the second quarter of 2016 onwards, as we progressively slow the rate of decline quarter-on-quarter. As I said before, I'm encouraged by the fact that we've slowed the rate of decline by 1% in each of the last 2 quarters.
Beyond that, we have an enlarged product portfolio with the opportunity to roll out successful product set across a wide geographic footprint, such as Sofficini, which we rolled out to Belgium at the end of 2015. This has been well received by our Belgian customers, and we're now looking at the opportunities to roll out a family size pack.
Sofficini is also something we're going to copy with pride also in our Austrian market over the coming months. We have highly experienced team working to improve efficiency and productivity across our supply network and our indirect cost base.
Out of that will come strong cash flows that we can reinvest in the business or use to build out our European frozen footprint..
With that, I will hand over to Paul, who is going to cover the financials in more detail. .
Thank you, Stéfan, and good morning, good afternoon, everyone. Before turning back to the presentation, please note that the financial information represents pro forma, as adjusted figures.
As communicated at last results presentation, we have now moved on to a consistent calendar basis for the entire group for the first quarter 2016 results and have done the same for the comparative period in 2015. So those sets of quarterly information are for January to March of their respective years for the entire group.
Furthermore, to invade -- to aid the investment community in their modeling, and to ensure that everyone is working from a consistent basis, we have also provided, as an appendix to this presentation, the updated pro forma as adjusted financial information for 2015 for the Nomad business as a whole on a consistent calendar basis, as well as providing the breakdown by quarter.
As a reminder, in our last earnings presentation, we presented financial information for 2015, which cover the 12 months to September 2015 for the Findus business from the 12 months to December 2015 for the Iglo business, those periods being the last audited set of financial statement available for the respective parts of the group.
As a result of adjusting the Findus business from a September 2015 year-end to a December 2015 year-end, EBITDA for the group has moved from EUR 345 million to EUR 331 million, which is due to 3 factors. Each were just over EUR 4 million.
Firstly, acquisition accounting adjustments; secondly, double running costs associated with the commissioning process for new automated production and warehousing facility is Sweden, required to complete the closure of the Helsingborg plant inherited from the previous owners, and thirdly, transactional FX impacts due to the weakening of the euro Swedish krona and Norwegian krone against the dollar.
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With that, I will turn to the first quarter results. All figures have been adjusted for exceptional items, restructuring and transaction related items and all of my comments from here on will refer to those pro forma as adjusted numbers..
Turning to Slide 5. We thought that it would be helpful to restate the quarter-on-quarter growth for the group that we originally published as part of the CAGNY Conference Presentation on to a consistent calendar basis for the Nomad Group as a whole.
While the absolute numbers have moved slightly, the rate of improvement remains the same, with the decline slowing of about 1% each quarter from an 8% decline in the trough of Q3 2015 to a 7% decline in Q4 and a 6.1% decline in Q1 2016, which is a slightly better performance than we were guiding to at the Q4 results.
Our expectation remains that we will continue to see a progressive improvement in the rates of decline through the balance of the year, as the various elements of the new strategy start to impact the market from the new creative work going towards the end of second quarter, through the implementation of the new promotional tactics in the third quarter, through the launch of the first wave of core renovation products in the autumn cabinet reset, which will mainly impact sales in the fourth quarter.
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Turning to Slide 6. We showed the year-on-year performance for the first 3 months of 2016. Net revenue was down EUR 23.7 million or 4.2% year-on-year.
Adjusting for currency impacts, the exit from Russia, an additional trading day in Q1 2016 due to the leap year from the business acquisition of La Cocinera in Spain, the like-for-like decline was 6.1% and 0.9% improvement on the rates declining in the fourth quarter..
As has been the case in the past few quarters, the decline in sales was driven by the group's 3 largest markets, namely, the U.K., Italy and Germany, although each of these markets again showed reduced rates of decline year-on-year compared to the prior quarter. Gross profit declined EUR 11.2 million, driven primarily by lower sales volumes.
Gross margin declined by 0.7%, driven by a slightly adverse mix and the dilutive effect of the La Cocinera acquisition. A&P investment was EUR 2.9 million low, as the group re-phased advertising spend to align with the anticipated launch of the new advertising.
Indirect costs were EUR 1.5 million, lower year-on-year, due to synergy realization and benefits from the group's lien reorganization program. The effective tax rate for the quarter was 23% consistent with Q1 2015. Earnings per share decreased by EUR 3 since year-on-year due to the decrease in profit.
Slide 7 contains the comments that I have just made. So I will not repeat them now. .
Turning to Slide 8. I will give a little more color on the sales performance. Adjusting for the exit from Russia, the additional trading day and the slight weakening in the Sterling and Norwegian krona rates gives the like-for-like sales comparator of EUR 573.8 million.
As a reminder, approximately 80% of our sales are concentrated in the U.K., Italy, Germany, Sweden, Norway and France, so I will focus my comments on those markets. The U.K. declined by 6.1% on a like-for-like basis in the quarter, a slight improvement on the 6.4% decline recorded in Q4. This was against the background of the U.K.
frozen markets, declining by 0.9% year-on-year. The U.K. grocery market remains extremely challenging, with shopper behavior and changing retailer strategies continuing to represent headwinds for the Birdseye business.
Shoppers continue to exhibit value seeking behavior, driving continued growth in hard discounters, with Aldin and Lidl up 18.6% and 8.8%, respectively, the top 4 retailers who account for around 70% of our U.K. business, saw their sales declined by 4.4% in Q1, as they competed for share of shopper spend and loyalty.
They remained highly focused on price, but are reducing their reliance on promotional spend in favor of rebalancing to everyday low price strategies. Our new strategy to focus behind our core products and increase base sales is showing encouraging early signs.
Birdseye reported a net sales performance ahead of volume for the first time since the second quarter of 2014, due in part to net revenue management initiatives.
Italy was again the largest driver of the overall sales decline, with a drop of 10.5% year-on-year, an improvement on the 15.4% decline seen in Q4, although the reasons for the decline remains the same as described at the Q1 results.
The economy and consumer confidence remain extremely fragile in Italy, which has impacted the frozen food markets as a whole, with the 3.3% decline seen in the quarter, while private label grew by 3% in the same period.
This, combined with a continuation of the strong pressure on customer margins, prolongs the 2016 annual agreements negotiation round, which limited our ability to access critical Easter promotion leaflets in 2 major customers, thus impacting overall results..
This has been further exacerbated by the shortage of hake fillets in Italy, which accounts for 30% of the sales decline in Q1. Excluding hake, our must win battle platform showed a decline of 5% year-on-year, which although still negative, is a clear improvement in run rates across all supported platforms.
Among the segments with improved run rates, positive highlights with the Sofficini pancakes range mentioned by Stéfan, which grew by more than 20%, thanks to the oven cook renovation launch, as well as fish fingers, which were relaunched at the end of 2015 and showed flattening results after negative trends in 2015.
The implementation of the new must-win battle strategy, coupled with stronger and better media and promotional support remain the focus of the local management team for the quarters to come. Germany declined by 9.2% year-on-year, which again sort of modest improvement versus the 9.7% decline seen in Q4. The market grew by 0.4%.
While the 360-degree marketing sports, our must-win battle, shows some early signs of success in fish, the Q1 results were overshadowed by customer-specific issue, which led to a halt in shipments for the fourth quarter, and where talks are underway to resolve the situation for the second half of the year..
Stripping this effect out of the comparison, Q1 saw strong growth in our must-win battles at fish fingers, fish recipes and coated fish. Although vegetables, where the level of product differentiation is lower, continue to be impacted by private label competition.
A complete overhaul of the vegetables assortment is planned for launch in Q4 2016 to combat this. .
Sweden like-for-like net sales declined by 3.1% year-on-year and the market up 5.2%, as performance issues in the Bjuv factory and distribution center impacted on customer service, reducing availability in stores with lower 65%.
The performance issues arose during the commissioning process for an automated production of warehousing facility inherited from the previous owners. Resolving these issues has been a major focus for the group, but it did result in some customers canceling promotions, which impacted net sales in the quarter.
The performance began to recover in the latter part of the quarter, although we expect some impact in Q2 until service levels completely recover.
Norway like-for-like net sales declined by 2.3% year-on-year and a market that was up by 2%, primarily in the retail natural fish business, where the group faced strong price competition from local producers sourcing in Norwegian krona. Vendors sources its fish largely in U.S.
dollars, and hence, become advantage -- disadvantage when the Norwegian krona devalues. In addition, the sales performance was impacted by the renegotiation of terms since the merger between ICA and the Coop in May 2015.
However, the food service channel continues to perform well in Norway, mainly driven by an increase in supply to our key contractors..
France grew net sales by 5% in Q1 despite the price wall within retailers and a market that was down 1.2% in value. The growth was mainly driven by the Findus brand, and most notably, the core business due to a significant level of innovation around these portfolios.
Examples of these innovations include portionable natural fish and a microwavable potatoes range. Of the EUR 6 million decline in the other countries, EUR 2.4 million can be attributed to Austria, which declined by 8.2% primarily driven by the bankruptcy of one of our customers in the latter part of 2015.
EUR 1.4 million can be attributed to the Netherlands, while we are facing tough competition from private label who are reducing prices to an uncompetitive level across most of the range, but particularly, in spinach and fish fingers.
We remain confident that our strategic initiatives, with the help of our planned media campaigns, will be able to combat this. Lastly, the business acquisition block relates to the incremental sales arising from the acquisition of La Cocinera in Spain in April 2015. .
Turning to the margin performance on Slide 9. We analyzed the gross profit movement year-over-year by key driver. Excluding the impact of exited markets, the additional trading day and FX rates, our like-for-like growth comparator is EUR 179.3 million.
Working across the page from this gross profit comparator, volumes were down slightly more than net sales on a like-for-like basis, driving a reduction in gross profits of EUR 12.2 million. The business also saw negative mix in the quarter, which impacted gross profit by a further EUR 2.2 million.
This was driven by the hake fillet shortage in Italy, which is an attractive business for the group, coupled with the growth of industrial and food service channels in Sweden and Norway, which typically deliver lower than average margins..
Pricing and promotional spend was EUR 6 million better year-on-year, driven by the effect of implementing price increases at the start of the year to offset raw material information. Performance was also impacted by lower promotional spend in Sweden, as a result of the product supply issues and in Italy as a result of the shortage of hake.
Cost of goods inflation reduced gross profit by EUR 4.3 million, driven by weakening of the euro against the U.S. dollar, the operational issues in Sweden and lower volumes, which drove lower fixed cost recoveries. This was in part offset by lower distribution costs and favorable buying process across the portfolio.
Business acquisitions contributed EUR 0.9 million. .
Moving on to the EBITDA bridge on Slide 10, the like-for-like EBITDA decline was driven by the impact of lower gross profit, which has been partly offset by savings in advertising and promotional spend, with the group re-phased advertising investment to align with the anticipated launch of the new copy.
Indirect costs were also lower year-on-year, driven by the reasons I highlighted earlier. In terms of EBITDA margin performance, the business saw a 0.3% decline year-on-year, driven by the decline in sales and gross margin due to the reasons I declined [ph] earlier. .
Slide 11 shows the pro forma as adjusted cash flow. The key drivers in the operating cash flow performance, aside from the EBITDA movement, our working capital, which showed a modest outflow, primarily due to a lower bonus accrual, aligns to the performance in the 2015 financial year.
To clarify, bonuses of the parts of the group are paid in April the following year. And at the end of Q1 2015, the group has creditor balances associated with the 2014 bonus accrual. By comparison, at the end of Q1 2016, the group had lower bonus related creditor balances year-on-year due to the required performance targets not being met in 2015.
Capital expenditure was held to around EUR 6 million for the quarter, as tight control was maintained pending the conclusions of the many manufacturing footprint review.
Tax paid has decreased by EUR 7.1 million, due to a combination of a one-off refund of cash tax, were EUR 3 million in Germany in Q1 2016, coupled with lower overall profitability in 2015. Our expectation for cash taxes in 2016 remains in the low to mid EUR 30 million, equivalent to an effective cash tax rate of around 19%.
Restructuring and nonrecurring cash flows in Q1 2016 of EUR 16.5 million were largely driven by cost associated with the integration of the Findus group, the implementation of the Nomad strategy and the restructuring programs in a number of the group's factories.
The operating cash flow conversion year-over-year for the first quarter was 86%, broadly in line with our strategic target of around 90%..
The free cash flow pre-restructuring and nonrecurring costs delivery of EUR 68 million is consistent with our EUR 200 million annual target.
LTM or rolling 12-month operating cash conversion was lower than our typical level at 79% of pro forma as adjusted EBITDA, due to a combination of lower bonus accruals and higher inventory in the Findus market to a couple of planned factory transitions, for example, the closure of the Helsingborg plant. I will now hand you back to Stéfan. .
Thank you, Paul. Lastly, our synergy target remains unchanged at EUR 43 million to EUR 48 million. As we have previously commented, the synergies will be relatively modest in 2016 and phase towards the back end of the year.
On personal related synergies, we need to go through consultation processes associated with our planned reorganizations, and I'm pleased to announce that the consultation processes for the integration of the French and Belgian sales and marketing teams were both completed in the first quarter.
Following the completion of the consultation processes, we then have no dispute to work through, and the synergies will only be realized towards the end of the year.
On procurement, while we commenced the integration process on day 1 of the acquisition back in November last year, it's important to remember that 2 of our largest categories are seasonal in nature. So for vegetables, we have 1 crop per year in the autumn and we were there for -- already committed to turn for the 2016 harvest.
For fish, they are 2 main fishing seasons, 1 in the spring and 1 in the autumn, and again, we already have commitments in place for the spring season. So the synergies will flow later in the year. Commercial synergies by their nature take longer to realize, as product launches have to be negotiated through the trade.
Also, we have commercial overlap to work through, most notably in France in the fish portfolio..
In total, we realized synergies of just under EUR 3 million on an annual run-rate basis, which equates to around 3 quarters of EUR 1 million in the first quarter. The bulk of the synergies have come from indirect cost savings in France, Belgium and Norway, as well as procurement cost savings. .
So in summary, as Paul has shown, while the commercial market environment has remained challenging in Q1, we continue to believe that we have the right actions in place to stabilize the business, and we're seeing some encouraging early signs that our strategy is working and expect to see progressive improvements from the next quarter onwards.
As I said earlier, I'm encouraged that both of the last 2 quarters have seen a slowing rate of the of the decline from bottom in Q3 of last year.
The capability of the business on the cost and cash disciplines remains strong, and we remain optimistic that we'll be able to stabilize the sales line, whilst maintaining our strong track record of margin and cash delivery..
The Nomad team is coming together well, and I'm extremely pleased with the level of collaboration across all our businesses, as well as the determination of all our employees to deliver flawless execution of our strategy. And with that, I will turn the session over to Q&A. Operator, back to you. .
[Operator Instructions] We'll have our first question from Jon Tanwanteng from CJS Securities. .
Can you provide the pro forma Q2 revenues from last year?.
So we provided that in our presentation, so slide 14 shows the Q2 2015 pro forma as adjusted financial information for the whole P&L, and the pro forma revenue for Q2 2015 was EUR 488 million. .
Got you. Okay. That's helpful.
And then seasonally, Q2 should be weaker, right? Is that what's the -- do you have the percentage usually of the year to that usually is?.
So it is normally something like 26%, 27% in Q1; 23%, 24% in Q2; 23%, 24% in Q3; 26%, 27%, Q4.
So there's not a huge amount of seasonality, but we do see a slight drop off in the summer, partly because in Southern Europe, in particular, people eat outdoors, and therefore, our ovenable products are less relevant to them partly because a little more of the [indiscernible] goes to ice cream. .
Okay, that's helpful.
And then any color on the macro environment currency and input pricing trends heading to the June quarter? What have you seen so far?.
So as I said in the script, John, I think input prices, so far, have been reasonably benign. As we communicated with the fourth quarter results last year, we are seeing the weakness of the euro, krona, Norwegian krone and Swedish krona impact cost of goods to varying degrees across those markets.
And we guided that we would see that impact from Q4 last year through to the end of Q3 this year. As you can see, from Q1, we've largely managed to offset that by pricing so far. .
Okay, great.
And then any update on the environment for M&A? What are you seeing out there, either valuations or opportunity? Can you just provide an update there?.
The -- To be fair frankly, Jon, we've been -- we've remained very focused on the -- obviously [indiscernible] operations. So that was really the priority for us. This being said, when you see the price, price remain quite competitive. The good thing is -- and that's what we're trying to do with the acquisition of Findus, trying to do 2 things.
One is, obviously, to generate the right level of synergies, which will help us, obviously, to stabilize the EBITDA, to improve the EBITDA, and also to further invest in the business, but beyond this, it would serve as a model for further integration.
And so even if prices remained high, if you're coming with the right level of synergies 6%, 7%, 8%, 9% offset, then you -- obviously, you're becoming obviously a -- you're creating a competitive advantage, whatever the kind of price and the M&A pricing environment you have at that time -- so that's operated today. .
Got you.
And then if it were to occur, would a Brexit actually impact your operations in anyway?.
So we obviously have planning in place for Brexit, Jon. I think the relevant things to bear in mind if you're thinking about modeling the impact of Brexit on the business, obviously, there would be some currency volatility for sterling as the exiting country, possibly for the euro as well, who knows. So we would see currency volatility.
Clearly, we hedge out between 9 and 12 months, so we hedged for the rest of the year against any transactional currency volatility. So it would largely be confined to 2 translational effects, which we always call out.
From an operational perspective, there is a 2-year period of grace to renegotiate trade contracts between the EU and any departing country. So we would have time to plan for any tariff barriers that might result. The key exposure, I suppose, is the U.K.
to Europe, where we import about EUR 120 million a year of fish, and we export about EUR 40 million a year of poultry. Correcting that EUR 80 million net imbalance would require us just to put a fishing processing line into our U.K. factory.
So we would be able to complete that well within the 2-year period, should it look like tariff barriers were being erected. So I think we are well able to cope with any potential impact on our business. .
Okay. Great.
And then, finally, any update to your free cash flow outlook and the cost associated with the integration and the closing of the facility in Sweden?.
No center change.
So as I've said in the presentation, the EUR 68 million delivery in Q1 is consistent with delivering the EUR 200 million for the full year, and our expectation is still to spend around -- or invest around 60% of that or EUR 120 million into restructuring and integration costs associated with the Findus acquisition and other restructuring through the business.
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We'll have our next question from Rob Dickerson, Consumer Edge Research. .
I just have a few easy questions hopefully. Just I guess, follow up on the last one with respect to the EUR 200 million free cash flow for the year, the EUR 120 million in restructuring and kind of other costs.
Could you just provide potentially just a bit more color as to where that actual cash goes and is it for -- are we talking more severance or is it larger supply chain initiatives, you're investing in the entire supply chain, not just the cost coming off of the Swedish plant?.
Sure. Happy to do that. So we have forecast EUR 120 million, of that EUR 50 million is directly associated with the proposed closure of the Bjuv factory, where we are currently working through the consultation process with the unions and workforce at that plant.
That comprises both severance pay, but also our necessary investments associated with the transfer of production. We then have probably about EUR 25 million of integration costs related to our IT platform. So Nomad benefits in its old Iglo business from a single instance SAP platform, and that is a critical part of our operating model.
The Findus businesses and we knew this from the diligence prior to acquisition have a very old IT estate, in some cases, out of support and rather fragmented. So we have to rollout our SAP platform across the acquired businesses. And we are currently blueprinting that, ready to go later this year, and that will flow into next year.
So the cost this year is probably going to go around EUR 25 million. There will be a cost next year, but it will be smaller than that, depending on how far we get through the integration program on IT this year.
You've got another EUR 20 million regarding restructuring in the old Iglo business, so clearly, so we saw volumes fall away quite sharply last year, and we have as a result, got restructuring programs running in 3 of the 4 legacy Iglo plants.
We also have the lean program that Stéfan kicked off when he arrived, growing through the sales and marketing businesses as well. So there's about EUR 20 million going in there.
The rest -- so the remaining, I suppose, EUR 25 million, about EUR 15 million of that is integration costs associated with synergy delivery at Findus, so clearly that would be severance costs associated with the indirect synergies projected in our forecast and procurement as well.
So there are some contract procurement and contract legal resources to assist us in renegotiating and papering the contracts, as we roll through the combined.
And lastly, you have costs associated with unusual listing, getting to SOX compliance in year one, so we have a project running for that because we have a very limited time to deliver Sarbanes-Oxley compliance, and other corporate development stuff. So that's the breakdown of the EUR 120 million. .
Okay, great. That's actually very helpful. So then would it be fair to say, I mean, this is very rough math. But just out of the pocket, if you just went through -- should we expect, as we get into '17, obviously, it's a fair amount of time away, but I have questions on this all the time from investor days.
Is maybe half of that kind of come -- rolls off as we get into next year? Is that fair?.
So we would expect -- not well -- so absence of the acquisitions of factory closures, we would expect a much lower level of spend next year, so we would be looking probably more at low tens of millions than anything like EUR 120 million. So we would expect to see material cost in '17. .
Okay. Great. That's great. Okay, and then next, it sounded like around your Q4 call, and I guess, some when you presented at CAGNY event, some of the -- or part of the short-term plan, the attempt to stabilize volumes was to maybe increase promotional spend in certain areas, right? So just trying to block and tackle where you came with the retailers.
In Q1, you're pointing to increased pricing and kind of a reduction in that promotional spend.
Is that -- was there anything that changed during the quarter that caused promotional spend to kind of go down versus up outside of that mixed component you're talking, some of the inventory issues or not?.
Yes. So I think I'll give you my view, and then Stéfan could probably provide a broader, perhaps, more retailer-centric view. So in Q1, you had a couple of one-offs that reduced promotion levels, but first, there was the Swedish supply issues.
So as a result of the Swedish supply issues, we agreed with a number of retailers that it made sense to cancel promotional slots, because product availability didn't support that level of demand. In Italy, we have had the shortage on hake fillet, which is an industry-wide issue, but has impacted our business.
So again, we pulled promotions on hake to maximize the return from the available supply. There's a couple of one-offs going through. We have got pricing in Q1, which is a result of our negotiations with the trade around the change in dollar/euro coming through as well.
We have selectively in some markets, maintained or increased level of promotion, where we think it's sensible to keep people with us, pending the launch of the new strategy, but I think a slightly better result than we have, perhaps, expected back at the Q4 results, but Stéfan, you should chip in. .
Yes, again, it's early days, so it's a bit difficult to be more specific than this, but it's very clearly a focus point for us in the future. So some of the countries -- in some of the countries, the promotion level is still way too high.
But again, things will happen, will not happen overnight, and again, it has to be considered together with all the other elements with quality, with pricing, with official baseline, with advertising. So we're doing -- we're going to do this everything in sync.
But what we see, at least, even some of the results are one-offs, we see some encouraging results, but again, more to come in Q2, Q3. .
Okay, great. That's fair. And then just lastly, with respect to the kind of the rate sales decline year-over-year cadence throughout the year, you're saying about 6% down like-for-like in Q1, and supposed to get better in Q2, Q3, et cetera.
Is that like -- should we be thinking you're down kind of about 6% in Q1, maybe you're down 4% in Q2, hopefully, with innovation coming in back half of the year Q4, maybe even Q4, the frozen department, per se, and your end markets doesn't really decline, the goal is to have finally get to the flat organic sales year-over-year in Q4.
So should the market be thinking that, for the year, we're down 3%, but say, like-for-like or what?.
It's a good guess. It's a good guess. I appreciate, and I guess, you will appreciate my answer, which isn't changed. We said then we're going to do what we're going to do, which is we said Q1 should be in line with Q4. Actually, it's a bit better, which is fine. Q2 should be better than Q1. Q3, same for -- a bit of the Q2 and Q4.
So at this stage, it would be quite presumptuous to exactly guess what the consumer is going to do. The only thing we can see is, number one, the rate of decline is moving the way we thought it would. That's good news.
And second, we can also see that the must-win battles, really, and good example, is Italy that Paul mentioned, where the rate of decline has moved from 15% to 10%, but within the 10% -- must-win battles are in the region of minus 5%. So again, not stable yet, but at least, still a long way to go, but it's moving in line.
So point is we're very focused on the consumer, the consumer -- at the end of the day, the consumer is the one that's going to decide how fast the must-win battles will move -- will make progress and also how fast the other categories will decline because when you decide that you're going to focus on 70% of your business, you need to be consistent.
It means that the 30% or the rest of the business will be less well served, obviously, or differently. So that's also major decision.
So long story short, long answer to your question, and to your best guess, but we're not changing our forecast, and we're going to focus more than ever on our strategy because we think what we're seeing is early signal that it's paying off. We're not going [indiscernible]. We're not going to cut corners. We're going to do this systematically. .
And we have no further questions in the queue. I'll turn the conference back over to Mr. Stéfan Descheemaeker for any additional or closing remarks. .
Thank you, operator. So yes, let me finish by thanking you, all, for attending the call today. So while I'm taking encouragement for the slowing of the rate of decline, the progress made on implementing our strategy so far, there is still, as I just said, there is still so much to do, remain focused on the key objectives for the year.
First is to stabilize the top line. Secondly, to deliver the predicted synergies, and thirdly, if available, to the highly synergistic deal in European frozen. With that, I wish you a good day, and hand back to the operator.
Operator?.
That does conclude today's conference. Thank you for your participation. You may now disconnect..