Good day, and welcome to the Nomad Foods second quarter earnings call. Today's conference is being recorded. And at this time, I'd like to turn it over to Paul Kenyon. Please go ahead. .

Good morning, good afternoon, everyone. And before we start, I would, as always, draw your attention to the disclaimer on Slide 2. I do not propose to read it through, but ask that you do so in your own time. .

With that, I will hand you over to Stéfan.

Stéfan?.

Thank you, and good morning, good afternoon, everyone, and thank you for joining us on our second quarter 2016 results call. As you just heard, I'm joined today by Paul Kenyon, our CFO, and I will start by saying that we continue to see some early positive results of our strategy and its execution.

Our focus remains on core categories and disciplined integration of Findus, and it's paying off. .

We have key priorities in 2016. Firstly, stabilizing sales by progressively slowing the rate of decline in the top line through the balance of the year. Secondly, delivering on our synergy commitments from the Findus deal and thirdly, pursuing consolidation of the European frozen category. So I'm going to take each of these points in turn. .

So firstly, I was really pleased to see a further slowing of the rate of decline in sales in the second quarter. We have now halved the rate of decline since the bottom of -- in Q3 2015, with only the early stages of our new strategy reaching the consumer.

We look forward to the remainder of the year, where we see this trend continuing as more demands of the new strategic line in the market. All teams are highly focused on what they can do to support the Must Win Battles ahead of the strategic rollout and have been extremely creative in refreshing all advertising with up-to-date logos and pack shops.

As I noted in my comments last time, we have succeeded in reintroducing the Captain in 6 markets by the end of the first quarter, utilizing previous copy, and the response has been uniformly positive, with increased levels of awareness amongst our consumers and improvements in the base rate of sales.

As a result of this success, we've elected to reschedule the launch of the new Captain advertising to early 2017 and instead, prioritize the launch of the new Vegetable copy from the third quarter of this year. .

The Must Win Battles are the heart of our strategy, and while the vast majority have yet to be activated, we are beginning to see some encouraging signs.

At the Q1 call, I commented on the Italian Sofficini savory pancake business, which was supported by the Oregon crispy coating product innovation launch backed up by focused promotion support, and I'm pleased to report that this Must Win Battle remains in double-digit growth year-on-year for the first half of 2016.

In Germany, I highlighted fish recipes as a Must Win Battle on the last call, supported by the launch of a new variant, this advertising and free gift promotion. Here, we have again, seen a year-on-year increase in quarterly sales delivering first half growth of those products of 6.7%. .

Another key Must Win Battle for the group is fish fingers, which saw a sales increase of 5.2% against Q2 last year. This was driven by the U.K.

we have adopted a more targeted approach to promotional activity, and Germany, where we have additional promotional activity in 2 of our largest customers as we continue to refocus on our core product offering..

Moving on to margin performance. Adjusted EBITDA margin was 2.2% higher year-on-year, although I would caution that this was significantly impacted by our decision to delay advertising investments into the second half of the year behind new or refreshed coffee.

Cash conversion was also strong during the quarter, and we remain on track to deliver the EUR 200 million pre-restructuring and nonrecurring cash commitment in 2016..

Turning to our second priority. The integration of Findus continues to be a key focus, and we have delivered approximately EUR 9 million in run-rate synergies so far and our integration process remains on track. This equates to around EUR 2.25 million in the second quarter and EUR 3 million year-to-date.

As a reminder, our overall target remains to deliver between EUR 43 million and EUR 48 million in 2018..

Our factory rationalization initiative is proceeding, and we have successfully concluded the consolidation process in Sweden.

This project involves a very complex product transfer process, covering over 400 SKUs, and while production has already started to transfer to other sites in the group, we now expect that the Bjuv site to cease operations in the first half of 2017, slightly later than originally anticipated, and Paul will update you with the timing implications of that change in his presentation..

I'm pleased to say that we have now restored normal service level -- levels in Sweden, and the business delivered year-on-year growth in Q2 on the back of strong demand in the food service and private label businesses.

As a reminder, as I mentioned in my Q1 comments, we have inherited some operational issues from the former owners of Findus, most notably regarding product supply in Sweden, which had negative impacts on sales during Q1.

The total financial impact of those supply challenges in our Swedish business has amounted to around EUR 8 million so far this year..

Regarding our third priority. We continue to see further acquisition opportunities, and we believe we are well positioned to execute both, on synergistic acquisitions in European frozen as well as grow the strategic transaction globally, as a means of delivering value for our shareholders..

With that, I will hand over to Paul, who's 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 for 2015 and as-adjusted figures for 2016.

All figures have been adjusted for exceptional items, restructuring and transaction-related items, and all of my comments from hereon will refer to those as adjusted numbers..

Turning to Slide 5. We thought that it would be helpful to continue to fill in the quarter-on-quarter growth for the group that we originally published as part of the CAGNY presentation.

As you can see, with a 3.8% decline, the second quarter shows a step-up in the rate of improvement quarter-on-quarter versus that seen over the prior 2 quarters, where the decline slowed at about 1% each quarter, from an 8% decline in the trough of Q3 2015 to a 7% decline in Q4 and a 6% decline in Q1 2016.

As Stéfan noted in his comments, we have succeeded in halving the rate of decline over the last 3 quarters, and our expectation remains that we will continue to see a progressive improvement in the rate of decline through the balance of the year as the various elements of the new strategy start to impact the market from the new refreshed creative work carrying from the third quarter onwards, augmented by the implementation of the new promotional tactics to the launch of the first wave of core renovation projects in the autumn cabinet reset, which will mainly impact sales in the fourth quarter..

Turning to Slide 6. We show the year-on-year performance for the second quarter of 2016. Net revenue was down EUR 32.1 million or 6.6% year-on-year. Adjusting for currency impacts and the exit from Russia, the like-for-like decline was 3.8%, a 2.3% improvement on the rates of decline in the first quarter.

As has been the case in the past few quarters, the decline in sales was driven by the group's 3 largest markets, mainly the U.K., Italy and to a lesser extent, Germany, although each of these markets again showed reduced rates of decline year-on-year compared to the prior quarter.

Gross profit declined EUR 8.8 million, driven primarily by lower sales volumes. Gross margin improved by 0.2 percentage points, driven by a favorable pricing year-on-year, lower levels of trade promotions and a reduction in input costs.

A&P investment was EUR 12.1 million, lower as the group re-phased advertising spend to align with the anticipated launch of the new advertising from the third quarter onwards. Indirect costs were EUR 2.1 million lower year-on-year due to synergy realization and the benefits from the group's lean reorganization program.

The effective tax rate for the quarter was 23%, consistent with Q2 2015. Earnings per share increased by EUR 0.01 year-on-year due to the increase in profit..

Slide 7 contains the comments that I have just made, so I will not repeat them here. .

Turning to Slide 8, I will give a little more color on the sales performance. Adjusting for the exit from Russia and the slight weakening in the sterling and Norwegian kroner rates gives a like-for-like sales comparator of EUR 473.9 million.

As I said a moment ago, the majority of the decline is concentrated in the U.K., Italy and Germany, so I will focus my comments on those markets. The U.K. business declined 5.4% on a like-for-like basis in the quarter and improved performance compared with the declines in both Q1 of this year and Q4 2015. The overall U.K.

grocery market remains extremely challenging, with the frozen sector in decline. The top 4 retailers remain highly focused on price to regain the loyalty of value-seeking consumers for whom the hard discounters represent a very real alternative with both Aldi and Lidl enjoying double-digit growth. The U.K.

business has taken active steps to enter new channels to reduce its reliance on the top 4, which now accounts for 67% of the U.K. business, down from 69% in 2015, and to take a more balanced approach to in-store promotional participation. The U.K.

team reset base pricing on the core portfolio to align with retailer strategies, and this has been well received by our trade partners. However, as we have said before, the U.K. remains the most difficult market, given the structural changes under way in the grocery channel..

Italy was again the largest driver of the overall sales decline, with a drop of 8.1% year-on-year, but this is an improvement on the decline seen in the last 2 quarters.

As we've commented before, the economy and consumer confidence remain extremely fragile in Italy, which has impacted the frozen food market as a whole, with a 2.2% decline seen in the quarter, while private label grew by 2% in the same period.

We continue to have an ongoing issue with hake fillets, which is still impacted by the industry-wide raw material shortage, and as a result, declined year-on-year. Excluding the impact of this, the Must Win Battles platforms are showing encouraging growth rates of 2.4%.

Within that, Sofficini pancakes continued to perform strongly in Q2 and fish fingers continued to consolidate, thanks to the Captain Findus media support. Furthermore, we have seen good development in peas, soups and recipe fish, all of which have benefited from stronger media promotion focus..

Germany declined by 3.9% year-on-year, which was a significant improvement versus the 9.2% decline seen in Q1. The market also declined by the same amount.

The Must Win Battles strategy is starting to show positive results, with both fish fingers and fish recipes showing growth rates year-on-year of 22% and 5.5% respectively, supported by 360-degree marketing campaign.

As I mentioned in Q1, our vegetable sector continued to be impacted by private label competition though the level of product differentiation is lower. The complete overhaul of the vegetables assortment with supporting media campaign is planned for launch in Q4 2016 to combat this.

The results in the quarter were again influenced by the continuation of a customer-specific issue, which resulted in no shipments being made for the second consecutive quarter, although we believe that we have recouped some of the lost sales as loyal consumers have purchased our products in alternative retailers.

The issue has been settled now and shipments restarted as of the beginning of July, with a more favorable business model and a smaller assortment..

The last bar shows the net impact of the remaining countries totaling EUR 2.3 million.

Included within this is growth in Sweden, driven mainly by the industrial and food service channels, offset by declines in Norway, where strong price competition continued on natural fish; the Netherlands, where aggressive pricing of private-label continues; and Austria, where the bankruptcy of a customer at the end of 2015 has impacted overall volumes..

Turning to the margin performance on Slide 9. We analyze the gross profit movement over year by key driver. Excluding the impact of exit markets and FX rates, our like-for-like gross profit comparator is EUR 143.7 million.

Working across the page from this gross profit comparator, volumes were down slightly less than net sales on a like-for-like basis, driving a reduction in gross profit of EUR 6.4 million. The business also saw negative mix in the quarter, which impacted gross profit by a further EUR 6.2 million.

This was driven by the continuation of 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 11.1 million better year-on-year, driven by the effect of implementing price increases to offset raw material inflation.

Performance was also boosted by lower promotional spend, in part due to the group's net revenue program, but also impacted by specific issues in Sweden as a result of the product supply issues, Germany as a result of the customer-specific issues and Italy as a result of the shortage of hake. .

Cost of goods inflation reduced gross profit by EUR 2.6 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 whole portfolio..

Turning to Slide 10, to the EBITDA bridge. The like-for-like EBITDA decline was driven by the impact of lower gross profit, which has been more than offset by savings in advertising and promotional spend as the group re-phased advertising investment to align with the anticipated launch of the new and more refreshed copy.

Indirects were also slightly lower year-on-year driven by the reasons I highlighted earlier. In terms of EBITDA margin performance, the business saw a 2.2 percentage point improvement year-on-year, driven by the delayed phasing of advertising this year..

Turning to Slide 11, we show the year-on-year performance for the first half of 2016. Net revenue was down EUR 55.8 million or 5.3% year-on-year. Adjusting for currency impacts, the exit from Russia and additional trading day in Q1 2016 due to the leap year and the business acquisition of La Cocinera in Spain, the like-for-like decline was 5%.

As has been the case in the past few quarters, the decline in sales was driven by the group's 3 largest markets, mainly the U.K., Italy and Germany, although each of these markets showed a reduced rate of decline year-on-year compared to the second half of 2015. Gross profit declined EUR 20 million, driven primarily by lower sales volumes.

Gross margin declined by 0.3 percentage points, driven by an adverse mix and the dilutive effect of the La Cocinera acquisition, partly offset by favorable pricing, lower trade terms investment and a reduction in input costs.

A&P investment was EUR 15 million lower as the group re-phased advertising spend to align with the anticipated launch of the new or refreshed advertising from the third quarter onwards. Indirect costs were EUR 3.8 million lower year-on-year due to synergy realizations and the benefits from the group's lean reorganization program.

The effective tax rate for the first half of the year was 23%, consistent with the first half of 2015. Earnings per share decreased by EUR 0.02 year-on-year due to the decrease in profit..

Slide 11 -- Slide 12 contains the comments that I have just made, so I will not repeat them now..

Slide 13 shows the pro forma as adjusted cash flow. The key drivers in the operating cash flow performance aside from the EBITDA movement are working capital, which showed an inflow of EUR 13 million, primarily due to the usual rundown of inventory levels ahead of the agricultural harvests in Q3.

The inflow was lower than the comparable period in 2015 as credit allowances were lower due to the advertising phasing change year-on-year..

Capital expenditure continued to run at about EUR 6 million per quarter as the group again, maintained tight controls of investment levels following the conclusion of the manufacturing footprint review. Tax paid has decreased by EUR 11 million due to refunds of tax in Germany and Italy of EUR 3 million and EUR 2 million, respectively.

We also have lower phasing of payments in the first half of 2016 versus 2015. Our expectation for cash taxes in 2016 remains in the low 30 millions of euros, equivalent to an effective cash tax rate of around 19%.

Restructuring and nonrecurring cash flows in the first half of 2016 of EUR 32 million were largely driven by costs 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 half was 99.5% which was slightly ahead of the prior year and taking into account seasonal fluctuations was aligned to our strategic target of around 90%.

The free cash flow, pre-restructuring and nonrecurring costs delivery of EUR 140 million is consistent with our EUR 200 million annual target..

To help those of you that are new to the company, I should mention that we typically see a cash outflow in the third quarter due to the annual agricultural harvests which fall during that period. It is difficult to give precise guidance due to the fact that harvest quality and quantity can vary significantly year-on-year.

On which subject, unpredictable weather in 2016 has adversely impacted both our spinach and pea harvests. As a result of this poor weather, we now expect our harvest yields to be lower than previously anticipated.

However, we are confident that we have enough peas and spinach in stock to minimize the impact of this on our customers and consumers, although we do expect some excess costs to hit our P&L associated with the factory efficiencies resulting from the poor harvests..

LTM, or rolling 12-month operating cash conversion, was lower than our typical level at 76% of pro forma as adjusted EBITDA due to the dilutive impact of the legacy Findus business.

Our net leverage ratio was 3.6x, which is 0.4x lower than the December 2015 ratio of 4.0x, driven mainly by an FX translation-driven decrease in gross debt of EUR 36.3 million and an increase in net cash of EUR 87.5 million..

In terms of our cash guidance of EUR 200 million pre-restructuring and nonrecurring, as Stéfan noted in his comments, we remain on track to deliver against that commitment.

In terms of the restructuring and nonrecurring cash flows, the rephasing of the product transfers from the Bjuv site may delay some of the restructuring cash flows associated with our project into 2017, and we will update you when the product transfer program is finalized.

As a reminder, our guidance for restructuring and nonrecurring cash flows for 2016 is EUR 120 million, of which EUR 50 million, 5-0, relates to the Bjuv factory closure..

To help you in modeling the P&L, as Stéfan reiterated, our ambition is still to progressively slow the rate of decline in sales as we stabilize the business.

We expect gross margins to hold up broadly in line with last year, as synergies and tight control of trade spend offset the cost issues in Sweden inherited from the previous owners and the expected incremental charges associated with the poor pea and spinach harvests.

We still expect A&P spend to be broadly in line with 2015 levels, while indirect costs were expected to be lower year-on-year as a result of synergy delivery augmented by lower bonus levels due to the operational issues described above.

Translation impacts of currency are estimated to reduce EBITDA by around EUR 10 million in 2016, assuming a rate of 117 for the balance of the year, leaving adjusted EBITDA broadly flat versus 2015..

Lastly, I have had a number of questions regarding the impact of Brexit on the business and thought it would be helpful to repeat my comments here. There is obviously a translation FX impact as our U.K. earnings are worth less in euro terms based on current rates and I have just quantified that impact for you.

There is also a transactional FX impact on raw material purchases, although this was hedged for the balance of 2016. In 2017, we will see an impact due to the depreciation of sterling versus the euro and the U.S. dollar, and the U.K. team are currently assessing opportunities to pass this onto the consumer.

Lastly, in the event of tariffs being imposed between the U.K. and the EU, it would be relatively simple to eliminate the current product flows between our European factories and the U.K. by making a modest investment in our Lowestoft plant to make the U.K. self-sufficient..

With that, I will now hand you back to Stéfan. .

Thank you, Paul. So in summary, while the commercial market environment has remained challenging in Q2, we continue to believe that we have the right actions in place to stabilize the business, and we are seeing some encouraging early signs that our strategy is working and expect to continue the progressive improvement seen in the second quarter..

As I've said earlier, I'm encouraged that we have managed to have the rate of decline from the bottom in Q3 of last year and are making steady progress on synergy delivery.

The capability of the business on the cost and cash disciplines remains strong, and we remain optimistic that we will be able to stabilize the sales line, while 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 of 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 take our first from Steve Strycula with UBS. .

first, talk about what proactively we should see, like underlying improvements in your businesses across key markets, stuff that is within your control.

And then secondarily, I would like to hear what like nonrecurring headwinds are going away and should be no longer part of a revenue drag for the business, like your bankruptcy in Austria, or factory service levels. .

So a result, obviously -- and please, Paul, complement to what I could say, proactively, across the board, as we said repeatedly, we have only started all the Must Win Battles. And when you think about these Must Win Battles, which represents about 75% of all our business, you have different stages. You will see we have the promotion stage.

You have the, let's say, the copy -- the copy stage and you have heard that we're really going to start intensively in Q3.

You have the renovation, which already have started but it's really going to hit Q3, Q4 and then Q1 and later on, in 2017 and obviously, as I said, the packaging side, which is really starting to impact again positively in the business starts in Q3, Q4. So that's really under our control. Just to give you an example, we going only to start in the U.K.

So U.K. for [indiscernible] reasons a bit more complex, is really starting a bit later than, for example, Germany. So that is really across -- it's really under our control and what we have seen, let's say, basically, Must Win Battle by Must Win Battle, where we are activating the Must Win Battle, it's working, so that's pretty good.

The non-recurring, let me take them one by one.

We should see already in terms of supply in Italy, we had the hake shortfall, so it should really start Q3, Q4 to get back on track, another non-recurring is those 3, to your point, is the bankruptcy of one of the smaller chains [indiscernible], which was around 5% of our business, 5% of market share as well, by the way, and so really starting next year, it should be a much easier time for the Austrian business, which, by the way, is doing well.

So that's -- and obviously, the service level in Sweden, at the end of the day, when you see -- if you can see how resilient the business is because despite, quite frankly, during Q1, early Q2, some rather low level of service we've been able to manage the business in a very professional way, so now we're back on track.

And you have seen -- and also despite the emotion caused by the closure of the Bjuv plant in Sweden, Sweden is, from the top line level, is delivering a very solid performance.

So with that, Paul, any complementary further comment?.

Just one... .

Yes.

Go ahead, Paul, please explain a little bit more and then I also like to hear, any kind of sales velocity comments that you're seeing from some of these new recent Must Win Battles? Like, Stéfan, how have your conversations evolved with retailers over the past years to kind of correct some of the decisions that were made under the old strategy? And how are the retailers receiving the conversations? And are they actually changing how they manage your product on the shelf space and where your placement is?.

Okay. Maybe I will cover that piece and then, Paul, you will obviously complement what I said. In terms of sales velocity, again, it's a question, Steve, of common sense. All the retailers, and it's a growing trend, like simplicity, so they want to make sure that the shelves are not cluttered and that they have the right SKUs.

So instead of coming with new initiatives, new, let's say, new product development, starting from a very low baseline, focusing obviously on the SKUs that work, which is somehow the essence of the Must Win Battle, is obviously something that is music to their ears.

And that's what we've seen obviously in negotiation with the retailer is always a process, as you know, it's always a battle, as always, but we've seen a really easy spike at the very difficult 2015, what we've seen is, yes, they like what they see, they like the simplicity and they like the focus. .

Okay. And then just to come back on your point about headwinds in the sales line, Steve, I think, being honest, with the European grocery channel as competitive as it is, we're always going to see small players fall out of the market, so you got a kind of steady group of those.

We manage our business very carefully to make sure we don't get a big hit from it but there are small retailers who are either being taken over or falling out. You probably got 1 per half year, maybe 2.

I guess the other comment I would make is inevitably, we are in difficult discussions with at least one retailer across our whole European business at any one time, that's just the nature of the industry and it's part of normal business.

It's unusual to be out of supply for 2 quarters as we were in Germany, but every so often, you have to make a stand to manage your business in the right way. So I think those things, I would characterize as part of normal course of business.

A couple of the others we've called out probably aren't, so it's unusual for a species to be in short supply across the industry as hake is in Italy at the moment. And as I commented on our first quarter results call, we have set up a new supply route, which will come online in the second half. So that probably is more unusual.

And the other unusual one obviously is being off promotion in Sweden in the second quarter, which was a direct consequence of our announcement of the closure of the Bjuv plant. So clearly, that would be more one-off in nature because we don't regularly close plants so hopefully, that gives you a bit more color behind the kind of headwinds we faced. .

Okay, great. And one last question and I'll pass it on. Just wanted to get an understanding.

I think, just to be clear, the EBITDA in euros for year-on-year is going to be roughly flat from the adjusted baseline pro forma of last year, is that correct? And two, can you kind of talk about the A&P spend shift that you guys are talking -- discussing? What is the magnitude into the back half? I know I think you said A&P's going to be flat year-over-year, but just talk about the nature of the shift and how should we think about A&P spend going forward?.

My suggestion, Paul, if you take the EBITDA question and then, together we will cover the A&P shift. .

Sure. So yes, as you will recall, in the revised 2015 pro forma numbers we put out in the Q1 results, we delivered EUR 331 million of EBITDA post currency, and that would be our current expectation for this year. On A&P, the precise number we have rephased, we've spent EUR 15 million, 1-5, less in the first half of 2016 than we did in 2015.

That was a decision that was subject to a lot of debate in the business, but it was felt that we needed to wait for the good copy and also to keep our powder dry until we had new products and new promotional tactics to advertise behind.

So we felt that we would get a bigger bang for our buck by waiting until Q3, Q4 when we had a more complete strategy to invest behind, but Stéfan, perhaps you would like to build on that?.

Yes. To be very clear, obviously, there is no pushback from the sense that you will spend less in terms of A&P, so it's really, we want to make sure that we're going to spend the right amount of money behind the right copies. So that's, that.

And in the meantime, which is also an ongoing process, by the way, we also -- we keep optimizing the A&P, the nonworking side. We just closed a deal with [indiscernible], that should also obviously improve the nonworking side of A&P.

But the number of GRPs is obviously very crucial for us and it's really one of the cornerstones of this Must Win Battle. So in each and every Must Win Battle over time is to receive the right number of GRPs to obviously feed some of the growth in the future. .

[Operator Instructions] We'll move to our next from Jon Tanwanteng with CJS Securities. .

Aside from the currency impact, have you seen any other demand impact from Brexit? And are you making any changes to how you purchase and process fish in response to the currency headwinds there?.

At this stage, no, we're not changing anything. Quite frankly, the currency thing is more driven by -- in terms of fish, by the way, it's more driven by the dollar, so it's not changing. We're not changing anything in terms of policy. It's mostly T12 anyway.

Besides that, obviously, as Paul mentioned, we're going to -- in the future, we're going to adapt in the U.K. more and more so as to become some sort of, let's say, less dependent upon obviously the currency impacts, especially at the transformation level.

Paul, anything else?.

No. I mean, I think, if I look at the pound-euro rate, it's -- I've been in the business 4 and a bit years now and I've seen rates range between 1.16 and 1.45, so we're still in the kind of range we've experienced and we didn't decide to move production when it was at 1.16.

I think if we see sterling has settled at a much slower rate on a sustainable basis, that might change our thinking, but I think we'd like to see how things play out. The U.K. government hasn't yet invoked Article 50.

There seems to be plenty of time before that happens, so I think we'd like to see how the negotiations between the relevant governments pan out before we start moving production around, but we obviously keep it under constant review. .

The good news is that, let's say, footprint wise we're reasonably well hedged between the different sites between continental Europe and U.K. .

And given the issues with currency, or perhaps, a more adverse harvest and various supplier retailer issues, what's offsetting that and giving you the confidence in being able to deliver on that EUR 200 million free cash flow target?.

Series of things. Let me start, Paul, and obviously, you will complement it. Synergies is one. Obviously, big great focus behind indirect. Also, you may have seen that, at the gross margin level, on this review program is really starting to generate some very interesting results.

And yes, little by little, as we said, moving from minus 8 to minus 6 to minus 3.8 to obviously an improvement Q3, Q4, all these things obviously will -- I mean, are making us more confident to hit the target that was mentioned by Paul.

Anything else, Paul?.

Yes. I mean, I think we've always called out that the cash generation from the legacy Findus business was at a much lower level than the old Iglo business. While it's early days, we are working very hard to improve debtor management, inventory control.

And as you can see from the CapEx line, we really have a very, very rigorous control of CapEx, which, as a discipline, we've had in the old Iglo business for years. So I think we see still a route to deliver the EUR 200 million, and that's why we have reaffirmed it today. .

Great.

And one more for you, Stéfan, just can you talk a bit more about the prospects for M&A today? Are they better or worse than they were in the previous couple of quarters? And what have you seen change in that environment?.

Again, at this stage, I will first and foremost -- I will focus really behind frozen food in Europe, let's say, priority #1 and for the right reasons, for us was really first stabilize the sales line, the synergies. Now that we're starting to get there, we're focusing more and more behind what could happen.

And what we've seen is, at least, at the bolt-on level, there is a series of potential targets that could be available in the coming, let's say, quarters or years. Obviously, you may know that I spent a bit of my life in M&A, you need to be true to do this.

So it's an unpredictable process but at least, we're starting to obviously to be more focused and be more proactive. But let's say, again, focused on frozen food at this stage, and I will cover the non-frozen food later.

On the non -- on the frozen food, you can see that you still have a lot of categories and countries where we -- there are some opportunities for us and we like it. To complement to when we have 2 Must Win Battles or 3 Must Win Battles in the country to come up with a fourth one with the same kind of cost structure makes a lot of sense.

And we're demonstrating with Findus that, yes, we can move obviously this margin from a reasonably lower level to a level that is becoming acceptable to us.

That's the kind of model we like, moving from a pre-acquisition of something like -- I'm just making it up, don't take this as an indication, but 9x EBITDA to something like 5.5 post acquisition is the kind of deal that makes a lot of sense and we think there are some let's say midsized deals that might be available in the coming quarters and years.

Back to other bigger things, again, we're going to be -- to remain very disciplined.

We've repeated that for the investment criteria that we set for ourselves in the past, starting from a very strong obviously position and Iglo was a great position, not a dominant position but definitely a leadership position, which was great, great people, potentially, some of you see similarities with frozen food might be helpful, synergies potential, very strong brands so that's the kind of things obviously.

We're not going to lose sight but obviously, it's also something which is outside frozen food but that could become available as well in the future. .

We'll take a follow-up from Steve Strycula with UBS. .

Just a quick follow-up. Stéfan, would like to hear your thoughts given your background and experience in revenue management. How those initiatives are tracking.

What stage are you in terms of building revenue management team internally? And at what point -- I know it takes time to implement revenue management, but what could it do, at what point? Like is it a 2017 catalyst for the company? Is it 2018? How should investors kind of think about that? And then, a follow-up question for Paul, on EBITDA margins, looking forward to next year, if you just exclude synergies, which will obviously be a benefit for the company, is there an opportunity on a like-for-like business basis to just make the business stand-alone basis more profitable from a margin perspective?.

So to be very clear with your question, it's 2017, it shouldn't be 2018. So definitely, we're starting to see some results already in 2016, but we're just scratching the surface at this stage. But 2017 should be definitely an important year.

So back to revenue management, as such, revenue management is a very generic term that includes many different components. And I would just limit myself to 3 at this stage. Each and every country within the Nomad food scope will receive targets in terms of conditionality.

So obviously, the more conditionality, the better it is in terms of trade terms with the retailers, that's one thing. And you have very different situations from one country to another, from one retailer to another, so it's really something -- it's something that is -- something we need to develop year after year, so that's one thing.

Second is obviously is to make sure that we have retailer by retailer, store by store, the must-have assortments. It could be a must-have assortment for the hypermarkets, could be for supermarkets, could be for convenience, so but that's the kind of discipline that's going to pay off, and we have the data that prove this.

And last but not least, and it's really going to hit positively the results in 2017 is, when you go through the data and you need to have the right transparency for this, you'd be surprised by the number of promotions that are just useless and sometimes even negative for both and for both, for the retailers and for us.

So this is something that we are tracking. We're bringing the right level of visibility. Right now, we're investing behind this with some providers, some service providers. And then again, we're going to provide -- to come up with targets by country.

So that's the kind of program starting 2016, generating results already early in 2016 but bigger -- I mean, more to expect in '17, '18, '19. .

And then taking your question on EBITDA margin, Steve. I mean, obviously, we have a well-honed continuous improvement program that rolls every year through our supply chain. Stéfan's just talked to the net revenue management and he talked earlier to our efforts to squeeze the maximum benefit out of A&P.

I think the organic terms, ex synergies, whatever we throw off we would much rather at this stage reinvest into A&P, because we think with the Must Win Battle concept, we have something that really could drive sustainable progress for the company.

And I guess, we would prefer to invest more behind that to give it a real chance of success than drop it to the bottom line at this point. But Stéfan, you may want to build on that. .

Well, I think you mentioned there all the right thing. That's why we said, obviously, we want to see progress behind indirect, that's very clear. But within A&P, obviously, you need to make the difference between the nonworking costs and on that one we'll keep the same kind of discipline.

But at the same time, we need to reinvest behind our brands, behind our Must Win Battles. And yes, I think, obviously, the number of GRPs per category is absolutely fundamental. And so we still have some further investments to make sure that we have the right level, and we're not going to compromise on that. .

And we'll take our next question from Brian Holland with Consumer Edge Research. .

Quick housekeeping question, if I could just start. Just thinking about the back half of the year briefly, and I apologize if you've addressed this earlier, we're looking at sequential improvement. Can you kind of help us think about the cadence for that? You've got easier comps in the back half.

You've obviously got some staggered initiatives rolling in and benefiting.

If we think about the kind of sequential improvement we've seen the last 3 quarters, is it the same kind of pace of improvement? Are there reasons why it should be slower or maybe accelerate faster?.

I will pass this question to my CFO.

Paul?.

Thanks, Stéfan. Yes, I mean, we've always said it was difficult to predict precisely how fast the new strategy would impact given the range of markets and the range of products within the Must Win Battle categories. Clearly, we've delayed advertising spend to the second half of the year to ensure that we really get the more for the bang.

It's very difficult to predict how fast those products in those markets will respond. So I guess, we were heartened to see that in Q2, where we've managed to get old copy of the Captain back on air with refreshed logos and refreshed pack shots, that we have seen a bit of a pickup in the business or the rate of improvement.

So I think our ambition is still to deliver quarter-on-quarter improvement. While I understand the point people make about soft comps, it's easier to lose consumers than gain them in this channel in Europe. So I wouldn't underestimate the challenge we face in getting the business back to stable but currently, we feel in reasonable shape after Q2. .

Got it, thank you. And then if I could just circle back on your M&A comments. You've obviously talked about -- and I appreciate that you're focusing on the day-to-day, where your priorities are with stabilizing the core and integrating Findus, but again, looking forward on the M&A, and you sort of talked about Europe.

I guess, can we just maybe get some commentary about the North American market? How you're thinking about that? I know it's been out there as a potential for you.

I know it may be a longer-term initiative, but maybe how you would think about that or prioritize and continuing to roll up Europe, which seems like it may be a smaller opportunity as opposed to maybe building a platform in North America, so if you could maybe provide any updated thoughts you have about that?.

Okay. Let me -- number one, food overall, in Europe and in North America, the food market is reasonably fragmented and I think we could say the same for North America. So as a result, starting from strong platform and, obviously, a bolt-on acquisition process later on should create value.

So there are obviously other categories that we should contemplate in North America. I don't think we should limit ourselves to frozen food. Because quite frankly, the frozen food synergies between North America and Europe are quite limited, obviously, you have best practice and some scale, but very limited. So that shouldn't be the criteria.

So the criteria remains the same and we know that we have -- there are some interesting targets, same thing. Starting from a very strong brand.

Obviously, if you're starting from a new category, you need to make sure that you have the right management, something we inherited and at the end of the day, with Iglo and with Findus but definitely with Iglo as a starting point and, obviously, in markets where we have a leading position.

So with that, I don't think you can afford to go to something which is too small in the U.S. because if it's too small a search probably starting from the right starting position, reasonably leading position that something, the kind of things we had with Iglo. So don't expect something like a bolt-on in the U.S.

or necessary something in frozen food, but expect something that responds to the same criteria as the one that we had described and used for Iglo. But there are different categories that fit the bill. .

And at this time, I like to turn it back to management for any additional or closing remarks. .

Okay. So with that, again, as you said, let me finish by thank you all for attending the call today. While I take encouragement for progress made on implementing our strategy so far, as Paul said and as I said, there is still much to do, and we remain focused on our key objectives for the year. Firstly, to stabilize the top line.

Secondly, to deliver the product the predictive synergies and thirdly, pursuing a highly synergistic deal in European frozen. So Paul and I look forward to seeing many of you in the U.S. in the coming weeks, in Boston, more specifically. And with that, I wish you a good day, and hand back to the operator. .

That concludes today's conference. We thank you for your participation. You may now disconnect..