Good day, everyone, and welcome to the Nomad Foods Third Quarter 2016 Earnings Conference Call. Today's conference is being recorded. And at this time, I'd like to turn the conference over to Mr. Paul Kenyon, CFO. Please go ahead, sir. .

Good morning, good afternoon, everyone. Before we start, I would draw your attention to the disclaimer on Slide 2. I do not propose to read through it but ask that you do so in your own time. With that, I will hand you over to Stéfan. .

Thank you, and good morning, good afternoon, everyone, and thank you for joining us on our third 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 positive results of our strategy and execution.

Our focus remains on Must Win Battles and disciplined integration of Findus and it's paying off. As I said at the second quarter results call, we have clear 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..

Taking each of these points in turn. Firstly, I was pleased to see a further slowing of the rate of decline in sales in the third quarter.

The rate of improvement is lower than what we have seen in recent quarters, but it's important to remember that the autumn cabinet reset only happens at the end of the quarter, from mid-September and onwards, and so the impact of the new product launches is largely limited to the selling to the trade.

Our expectations remain that we will see a slowing of the rate of decline in the fourth quarter, although we have some headwinds in the business that means that the rate of improvement will be smaller than the third quarter. Paul will give you a more detailed perspective on this in his comments..

The autumn cabinet reset saw the first major wave of Must Win Battle activation in terms of product launches and the following products are now on the shelves.

In the U.K., we launched a new premium fish finger under the Inspirations range, a new gluten-free variant in our standard fish finger range and relaunched our coated fish products with a new improved crumb.

In Italy, we relaunched our existing natural fish with new hake products alongside the introduction of new tuna and salmon products within this category. Our battered fish range was also relaunched and now includes kibbeling, a product copied from our Netherlands business.

In Norway, we expanded our coated fish range with the introduction of a new fish and crisp variants, which was launched in the quarter. .

I have mentioned before that one of our key learnings from the Must Win Battle launches so far has been the importance of 360-degree activation, that is to say we need to have new product news, high-quality packaging, effective advertising copy and a strong promotion mechanic all in market at the same time.

Our teams are highly focused on delivering this 360-degree activation once the target level of distributions have been achieved for the new products..

This is a critical point as markets vary widely in terms of distribution efficiency. For example, in the U.K., where the grocery channel is highly concentrated, reaching good level of distributions can be achieved within 2 to 3 to 4 weeks, within -- with target distribution taking 2 to 3 months.

In Italy, where the grocery market is still extremely fragmented, reaching the target distribution levels can take up to 6 months..

Despite the need to time advertising to follow distribution builds, we had advertising on air behind the new -- a number of Must Win Battles in September.

For example, in our fish fingers battle, we were back on air with the iconic Captain Iglo in U.K., Germany, Belgium and the Netherlands towards the end of the quarter, and early indications are positive with fish fingers showing an increase of 4% for the group. Another Must Win Battle is natural fish, where we're also seeing the positive growth.

In France, we grew by 8.3% versus quarter 3 last year, driven by more effective promotion activity and innovative product launches. In our Italian markets, we activated peas and fish fingers, and towards the end of the quarter, natural fish sofficini and gratinati.

Although early indications are encouraging, as I mentioned earlier, achieving full distribution of growth associated with this can take up to 6 months in Italy, but we're optimistic that we have the right mechanics in place now to achieve this..

Moving on to margin performance. Adjusted EBITDA margins was 2% higher year-on-year, although I would caution that this was impacted by the release of the year-to-date accruals related to the group's annual bonus scheme, which we'll not pay out this year.

Cash conversion remains strong and by the end of the third quarter, we have delivered EUR 116 million of our EUR 200 million pre-restructuring and nonrecurring cash flow commitment. So we're well on track..

Turning to our second priority. The integration of Findus continues to be a key focus, and we have delivered approximately EUR 10 million in run rate synergies so far and our integration process remains on track. This equates to around EUR 2.5 million in the third quarter and just over EUR 5.5 million year-to-date.

This apparently flattening out of the rate of synergy delivery was expected and is due to these synergies in our French business as the old Iglo portfolio has been beefed up by certain retailers ahead of ordering the replacement Findus-branded products. Paul will cover this in more detail in his comments..

Lastly, 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 in line with expectations with the Bjuv site scheduled to cease operations by the end of the first half of 2017.

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

With that, I will hand over to Paul who is going to cover the financials in more detail. .

Thank you, Stéfan. 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 here on will refer to those as adjusted numbers..

To aid users of our financial information, we have included within the presentation an appendix from Slide 15 onwards, which will enable you to reconcile non-IFRS financial information to our reported financial information. We will continue to develop the format of these non-IFRS reconciliations as we go forward..

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 conference presentation.

As you can see, with a 3.3% decline, the third quarter shows an improvement in the quarter-on-quarter rate of decline for the fourth successive quarter, starting from the 8% decline in the trough of Q3 2015.

As Stéfan noted in his comments, our expectation remains that we will see a further improvement in the rate of decline in the fourth quarter as further Must Win Battles are activated, although there are some offsetting headwinds that will limit the rate of progress in the fourth quarter, as I will cover later on..

We have also extended the chart to cover 2017 since we will not have completed all of the planned Must Win Battles activations until the end of the first half. We will update our sales guidance for 2017 at our annual results presentation.

But for those of you starting to think about sales trends beyond the end of 2016, this is worth remembering that 2017 is not a leap year, so we have 1 less trading day in Q1 and that the Easter promotional period falls in Q2 next year, whereas it was in Q1 in 2016..

Turning to Slide 6. We show the year-on-year performance for the third quarter of 2016. Revenue was down EUR 32.6 million or 6.9% year-on-year. Adjusting for currency impacts and the exit from Russia, the like-for-like decline was 3.3%, an improvement on the rate of decline in the first half of the year.

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 to a lesser extent, Germany, although each of these markets again showed reduced rates of decline year-on-year compared to the prior quarter.

The group also saw a drop in the sales in France as retailers destocked Iglo products ahead of ordering the new Findus-branded SKUs. I will cover this in more detail shortly..

Gross profit declined by EUR 11.7 million, driven primarily by lower sales volumes. Gross margin declined by 0.5 percentage points, driven by the impact of reduced deficiencies in the factories due to the lower harvest yields.

The A&P investment was EUR 1.7 million lower as the group held back investment over July and August, increasing in September as we up-weighted spend for the remainder of the year.

Indirect costs were EUR 14.3 million lower year-on-year due to the releases of the year-to-date accruals related to the group's annual bonus scheme, synergy realization and benefits from the group's lean reorganization program..

Results in Q3 2016 as adjusted EBITDA was EUR 85.1 million, representing 19.4% of revenues. In Q3, the effective tax rate was 23%, consistent with earlier quarters and with Q3 2015 as adjusted earnings per share increased by EUR 0.01 year-on-year due to the increase in as adjusted profit period.

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 exit markets and the weakening in the sterling rate gives a like-for-like sales comparator of EUR 454.2 million.

As I said a moment ago, the majority of the decline is concentrated in the U.K., Germany, Italy and France, so I will focus my comments on those markets..

The U.K. business declined 4.6% on a like-for-like basis in the quarter, an improved performance year-on-year compared with the declines in both Q1 and Q2 of this year. 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 half discount has represented very real alternative with both Aldi and Lidl continuing to show strong 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 promotion. The U.K.

team have reset base pricing on the core portfolio to align with reseller strategies, and this has been well received by our trade partners.

These initiatives have led to short-term value share growth in 2 of our Must Win Battles, garden peas, up 190 basis points; and fish fingers, up 280 basis points, based on Nielsen's 12-week data to the 10th of September. In addition, the U.K.

team has also won new business with one of our top 4 trade partners in another of our key Must Win Battles, coated fish..

In Q4, the U.K. business will benefit from large Must Win Battles media activations for fish fingers, peas and Inspirations. As said before, the U.K. remains the most difficult market given the structural changes underway in the grocery channel and therefore, remains extremely challenging..

In Italy, overall sales continued to decline by 7.4% in Q3, but this is a lower rate of decline when compared to Q1 and Q2 2016. As I commented before, the economy and consumer confidence remain extremely fragile in Italy, resulting in a decline of 1.9% in the frozen food market in the quarter whilst private label grew by 1.5% in the same period.

We continue to have an ongoing issue with hake fillets, which were impacted earlier in the year by the industry-wide raw material shortchange.

Although the products impacted by the shortage were relaunched at the end of the quarter, our business has continued to suffer from lower levels of promotions for these products in the short term, although recovery is expected in Q4..

In addition, promotional share also declined across the Capitan fish fingers and coated fish ranges due to raw material price inflation, which we've now taken steps to resolve. Excluding the impact of the hake shortage and Capitan product ranges, the Must Win Battles platforms are showing encouraging growth rates of 1%.

And within that, we have seen good developments in peas, which were relaunched and are performing at plus 2.2% year-on-year in Q3..

Germany declined by 2.7% in the quarter, a further improvement versus the declines of 9.2% in Q1 and 3.9% in Q2.

The Must Win Battles identified for Germany are showing encouraging signs with fish fingers up 14.1%, driven by 360-degree activation, which has seen growth in both base and promoted sales on the back of Captain advertising, which will continue into Q4.

Our vegetables business in Germany continues to be impacted by competition from private label where the level of differentiation is lower, but we are planning a complete overhaul of the assortment in Q4 where we have plans in place to mitigate this impact..

Having resolved our discount with a key customer, we started shipments again in Q3 after a significant change in our way of collaboration and the level of discounts being offered. Inevitably, this has resulted in a net sales impact versus last year due to a lower level of promotional intensity.

We do now have a smaller, more focused range in store with improved profitability..

France declined by 5.7% in Q3 in a market that has declined by 3.1%. As I have mentioned in previous calls, we are in the process of merging our smaller Iglo business in France with our larger Findus brand.

As part of that process, we are merging the delisting of the old Iglo portfolio in customers and restocking them with Findus-branded replacement products as part of moving to a single trading entity.

The delisting process started in Q3, slightly earlier than expected, whilst the ordering of Findus-branded replacement products did not stop until Q4, and this accounts for the decline in the quarter..

Different retailers are moving through this process at different speeds, so we expect to see some volatility in the French sales performance over the next 3 quarters until all retailers are fully stocked with the Findus-branded replacement portfolio. This dis-synergy impact is the recent the overall level of synergy delivery has leveled out in Q3.

And as noted above, it will be a headwind to the overall level of synergy delivery until the second half of next year. Excluding this impact, we continue to see excellent performance in our French vegetables and natural fish sectors, which have grown 16.5% and 8.2%, respectively..

The last bar shows the net impact of the remaining countries totaling EUR 0.7 million.

This includes growth in Sweden of 0.5% driven by new contracts in our export and food service channels and Norway, which grew by 3.2% in the quarter, driven by good performance in all channels, especially retail due to more effective promotional activities on coated fish and fish gratins.

This was partly offset by the Netherlands, where aggressive pricing of private label continues, and Austria, where the bankruptcy of a customer at the end of 2015 continues to impact overall volumes..

Turning to the margin performance on Slide 9. We analyze the gross profit movement year-over-year by key driver. Excluding the impact of exit markets and FX rates, our like-for-like gross profit comparator is EUR 133.7 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 9.7 million..

The business saw a positive mix in the quarter, which impacted gross profit by EUR 0.8 million. This was driven by a shift in product mix in our Norwegian business towards fish products such as coated fish and gratins and our Swedish business as we focused heavily on our cod product range.

As the rollout of our new strategy progresses, we're also seeing declines in those sectors we have identified as nonpriority areas for the group, which typically attract lower margins..

Pricing and promotional spend was EUR 8.2 million better year-on-year, driven by the effect of implementing price increases to offset raw material information.

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 promotional levels have still not fully recovered from the product supply issues experienced early this year; Germany as a result of the customer-specific issues; and Italy, due to the residual impact of the shortage of hake..

Cost of goods inflation reduced gross profit by EUR 5 million, driven by the impact of the weaker euro against the U.S. dollar, coupled with the impact of lower harvest yields and consequent lower factory recoveries. This was in part offset by lower distribution costs and favorable buying prices across the portfolio..

Moving on to the EBITDA bridge on Slide 10. The like-for-like EBITDA growth was primarily driven by the release of the year-to-date accruals related to the group's bonus scheme, which won't pay out this year, offset by the impact of lower gross profit for the reasons I have just highlighted.

On a like-for-like basis, A&P spend is slightly lower than last year, driven by lower levels of spend in July and August. In contrast, A&P spend in September increased 58% year-on-year. In terms of EBITDA margin performance.

The business saw a 2 percentage point improvement year-on-year driven by the release of the bonus accruals and the delayed phasing of advertising I have just discussed..

Turning to Slide 11. We showed the year-on-year performance for the first 9 months of 2016. Net revenue was down EUR 88.4 million or 5.8% 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 4.5%.

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 showed reduced rates of decline year-on-year compared to the second half of 2015..

Gross profit declined by EUR 31.7 million, driven primarily by lower sales volumes.

Gross margin declined by 0.3 percentage points, driven by an adverse mix, the impact of the lower harvest volumes and the dilutive effect of the La Cocinera acquisition in Q1, partly offset by pricing year-on-year, lower trade terms investment and a reduction in input costs..

A&P investment was EUR 16.8 million lower as the group re-phased advertising spend to align with the anticipated launch of the Must Win Battles in the final 4 months of the year.

Indirect costs were EUR 18 million year-on-year due to synergy realization, the benefits from the group's lean reorganization program and the year-on-year impact of accruing for the group's bonus scheme last year. Resulting year-to-date 2016 as-adjusted EBITDA was EUR 262.8 million, representing 18.2% of revenues.

The effective tax rate for the first half of the year was 23%, consistent with year-to-date 2015. As-adjusted earnings per share increased by EUR 0.01 in the period, driven by the increase in adjusted profit. 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 outflow of EUR 28 million, primarily due to the intake of the annual agricultural harvest.

This was higher than last year despite the lower harvest levels due to lower creditor balances driven by the advertising phasing change year-on-year..

Capital expenditure continued to run at around EUR 6 million per quarter as the group again maintained tight control of investment levels following the conclusion of the manufacturing footprint review. EUR 2.4 million of that spend relates to Findus IT integration and hence is nonrecurring in nature.

As a reminder, capital expenditure levels typically spike up in the fourth quarter due to the Christmas factory shutdowns when major projects are carried out..

Tax paid was around EUR 8 million, significantly lower than the prior year 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 3 quarters of 2016 versus 2015.

Our expectation for cash taxes in 2016 is now between EUR 20 million and EUR 30 million, equivalent to an effective cash tax rate of 10% to 15%..

Restructuring and nonrecurring cash flows of EUR 41 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 9 months was 81.5%, which was ahead of the prior year. The free cash flow pre-restructuring and nonrecurring costs delivery of EUR 160 million is consistent with our EUR 200 million annual target..

I also mentioned on the second quarter results call that unpredictable weather in 2016 had adversely impacted both our spinach and pea harvest, resulting in lower harvest yields.

We're confident that we have enough peas and spinach in stock to minimize the impact of this on our customers, but we'll see some excess costs in the region of EUR 10 million hitting our P&L this year, of which EUR 6 million have already hit over the last 2 quarters.

Our net leverage ratio remained at 3.6x, which is 0.4x lower than the December 2015 ratio of 4x, driven mainly by an FX translation driven decrease in gross debt of EUR 23 million and an increase in net cash of EUR 82.7 million..

In terms of our cash guidance of EUR 200 million. Prerestructuring 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, as previously highlighted, the rephasing of the product transfers from the Bjuv site will delay the restructuring cash flows associated with that project into 2017.

Having finalized the product transfer program, we now expect to incur costs of around EUR 10 million in 2016, with the balance of the projected EUR 50 million cost being incurred in 2017. So in total, our guidance for restructuring and nonrecurring cash flows for 2016 is now around EUR 80, 8-0, million..

With regard to the rest of our guidance, it remains unchanged from last quarter.

We still expect to see a progressive improvement in the rate of sales decline in Q4, although there are some offsetting headwinds that will hold back the rate of progress in the fourth quarter, notably in Sweden, where our natural fish business has been impacted by delisting following price increases to recover input cost inflation, coupled with some product shortages, following the poor harvest..

Norway is also impacted by pricing on natural fish, as has been the case so far this year, and the exit of a large, low-margin private label potatoes deal. As noted earlier, trading in France will also be impacted by the transition of the old Iglo portfolio to the Findus brand as we expect further retailers to start the conversion process in Q4..

Lastly, there has been a reasonable amount of press coverage regarding a number of consumer goods manufacturers' intentions to raise prices in the U.K., ourselves included, following the currency depreciation experienced in the wake of the Brexit vote. We remain in discussions with our customers in the U.K.

and it would therefore be premature to comment on the progress of these negotiations. We will provide a further update in conjunction with our full year results. We still expect adjusted EBITDA for the full year to be broadly flat versus 2015..

I will now hand you back to Stéfan. .

Thank you, Paul. So in summary, while the commercial market environment has remained challenging in Q3, we believe more than ever that we have the right actions in place to stabilize the business.

We are starting to see some encouraging signs from a small number of Must Win Battles that have been fully activated, and we expect to continue the progress in improvement that we have now seen for 4 successive quarters since the bottom in Q3 of last year, albeit at a lower rate that we have just reported for Q3 due to the headwinds that Paul has highlighted..

We continue to make steady progress on synergy and delivery, and the capability of the business on the cost and cash disciplines remain strong.

The Nomad team is totally focused on flawless execution of our strategy as we move into an intensive period of Must Win Battle activation between now and the end of the second quarter of next year, and I have no doubt that we have the right team in place to deliver on that..

And with that, I will turn the session over to Q&A. Operator, back to you. .

[Operator Instructions] We'll hear first from Steve Strycula, UBS. .

First question. Actually, I like have 3 quick questions, but the first is going to be on sales. For sales, can you give us, Paul, any kind of cadence help as to how the quarter progressed month by month? You launched a lot of key initiatives in September.

Is that -- was that the strongest month in the quarter? And how should we kind of think about that through -- as you go into 4Q? And then also, can you quantify the drag from what's going on in France right now with the transition issues that you're experiencing and the delisting in Sweden? Just so everyone here on the line can understand the duration and the scope of, call it, that revenue drag that we're experiencing right now.

And then I have a margin question afterwards. .

Okay. So in terms of, I will take France and Sweden first, and then I'll come back to the phasing of sales through the quarter. So in France, the portfolio transition explained all of the movements that we showed for the French market on Slide 8. So the EUR 2.3 million in France was all explained by portfolio transition.

The business underlying was broadly flat in a declining market. In terms of Sweden, the salmon shortage will hit across -- well, at least some of the delisting, as a result of the price activity, will hit across Q4. We have not clarified that or quantified that to be honest, so we don't put a number to that.

In terms of the sales profile through the quarter, September was not a bad month. So we did see a bit of a lift in September. As I was saying at the Q2 results, July and August were always slightly strange months for us. In terms of, obviously, the cabinets, particularly in Southern Europe, are focused on ice cream.

And we can be quite weather-dependent. So if there's a real heat wave in Europe, we can see lower sales as people eat lighter food and tend to dine outside and therefore not use the ovens and a lot of our products are oven-prepared. So July and August can be always a bit bouncy for us, but September was a solid performance for us year-on-year. .

I would even add, September of -- to give a bit more color, for example, U.K. was -- we're starting to see real progress, again, with the activation of the Must Win Battles. .

And can you provide any kind of like anecdote as to how the U.K.

environment is improving, specifically as you mentioned in September? Are these new monies they're putting back into the business, whether it's product enhancement, advertising, all these initiatives in the marketplace, is it moving the needle with your retailers? Give us any kind of anecdotal example or Nielsen numbers.

And then how do you think about the pricing as we go forward? Because your peers in private label also have to take up pricing.

But how do you balance that out once you see about -- like what happened in Sweden in the past quarter?.

So let me start with some anecdote. These actions that we're taking in the U.K. from September and onwards and definitely in October, and so what we're doing right now, we have -- actually, we have 3 advertising on air. One is the Captain.

Actually, what we did really with the Captain was we just adapt -- readapted the German copy, and I can tell you, it delivers really well. So that's pretty good. That's very inexpensive and you can see that in the very lasting results, which, by the way, says something about the value of the icon in the U.K.

We hadn't seen the Captain for 10 years, and it's back on track and everybody remembers the Captain and it delivers. Second, we also said that we need to do something with our peas, which was losing some sort of relevance vis-à-vis the private label because we had not invested in the past behind peas.

So again, we have a new copy on air, and again, very, very early results, delivers really well. And third, something which was also going down, is we have a new copy for our Inspiration range. Again, too early to say, but at least what we've seen is interesting.

This, again, back to what Paul said about the 360 activation, we're coming with the 360 activation for these ranges, so it's coming with obviously price, promotion and also new packaging. So we said repeatedly that packaging needs to be readapted, that would be that way. Readapted means again the brand on the side, back to high-quality pictures.

The food is obviously the center of the whole thing. And again, I mean, I would invite you, once you are back the U.K. to see the freezers and it's really a major difference. So what we see -- these are some anecdotes, but at least really, strategy in action, and we're very pleased with the results so far.

Back to the question of price, it's always -- it's obviously a very volatile environment right now in the U.K. It's -- to your point, Steve, everybody is hit obviously by devaluation, even more so the private label producers, because obviously, they're starting from much a much lower margin.

And so the key question is, obviously, who is going to do something first. So that's -- so it's not so much the when, the if, it's much more the when. And so we've started the process, so that's why Paul mentioned its volatile right now. It's difficult to predict. We're in the middle of this negotiation, so that's why we prefer to be cautious. .

Yes. Just to give you some color on the U.K. from the Nielsen data, Steve, we have seen a lower share loss in the last 4 weeks than the last 12 weeks and a lower share loss in the last 12 weeks than the MAT or moving annual total.

And on volume share, we've actually seen volume share growth in the last 4 weeks and 12 weeks and a small loss on an MAT basis. So the lead indicators are that what we're doing in the U.K. is working. We always knew, in the U.K., it would be volume first than value. We're working hard on the value, as you know, from the pricing actions we're taking.

But we are starting to see some encouraging signs in the U.K. .

Great. And then I have one last question and then I'll pass it along. So then how should investors think about necessarily the next point or inflection where the sales trend should really start to improve in the business? Obviously, you have a little bit of ongoing headwinds continue in the fourth quarter.

But should we expect some kind of continued step function higher in the first half of next year? And then related to EBITDA, Paul, you did comment that the EUR 330 million is still a reasonable forecast for this current year.

How should we think about the building blocks for next year? Not necessarily guidance, but you had a poor pea harvest this year, the bonus accrual situation as well.

What should be the larger building blocks as we think about margins for next year?.

Okay, let me start with sales. As Paul told you, we're not going to come at this stage with guidance for 2017 as we're going to take, obviously -- we're going to mention that at the appropriate time, which is later next year. But at the same time, nothing has really changed.

As we said, we have still a series of Must Win Battles that need obviously to be activated the 360 way. We said that it's probably the full activation of all the Must Win Battles, which together represent 75% to 80% of our business, is going to be in full motion by end of Q2.

And then, which means that, yes, we have no reasons to believe that the strategy is wrong, and that we're very confident that we're going to keep it that way. .

In terms of building blocks for next year on EBITDA, obviously, you have on the positive side synergies coming through. We also obviously are expecting to see a lower rate of decline in sales as we head through the year. So we will have a stronger commercial base.

And as we evolve the portfolio through the Must Win Battles activations, we will see tail portfolio disappear.

So as we progress through the year, incrementally, small step by small step, we should see more of our product range manufactured in our own plants because our Must Win Battles tend to be manufactured in our own plants, so we capture the efficiencies of that.

So we do have some positive tailwinds that we're generating through our own cost management programs. Offsetting that obviously are the inflationary headwinds, so we are seeing some input cost inflation in some categories or at least that's the full cost as we see at the moment.

And we will certainly have some FX-based inflation as a result of the movements of sterling and the euro and the Swedish kroner -- Norwegian kroner against the dollar, particularly in regard to our fish purchases. The poorer harvests also require you to price because obviously, the price per kilo of harvest has risen.

So all of that means we are having to price in an environment that is challenging to pricing, not impossible, but challenging. So we have that to absorb. And then, obviously, we will be looking to reinstate some bonus scheme in the business, although that would obviously only pay out if we achieve our targets.

So yes, there will potentially be a headwind from reinstating the bonus scheme but only if we achieve our targets. .

And in the meantime, obviously, we will keep the business in a very tight leash more than ever in terms of indirect. That's a fact. And our network new management program is also starting to expand across the organization.

That's going to obviously help to finance these rebuilds between Must Win Battles, bonus and also to some extent, also some additional quality investments that we're making. .

We'll hear next from Jon Tanwanteng of CJS Securities. .

Can you give us a little more detail about how you're managing through the existing currency climate? And I know you don't want to talk about pricing just yet, but what further steps have you taken on the supply chain and the manufacturing side, if any?.

So as we said last quarter, we had hedging in place through to the end of the year and our hedges continue to roll forward. So as we sit here today, we're probably about 40% to 50% hedged for 2017. And that will continue to build as we move through the balance of this year into next year.

In terms of how we look at managing that cost and clearly, we endeavor to pass on inflationary trends to customers and consumers and we have a reasonable track record of doing that. So although as I said just now, it's a fairly challenging environment to pass on price rises.

But we are, as you all have seen from the press coverage, engaged with the retail trade, particularly in the U.K., which has seen the sharpest depreciation in currency, so we are actively pursuing that. We obviously also have net revenue programs aimed at optimizing our promotional spend, which is a big line for us.

We have a very experienced supply chain team who are very focused on efficient cost to manufacture, and we continue to run programs to take costs out of our supply chain base as well. And lastly, we have the lean program on the indirects.

We also continue to work very hard on our appetizing line to make sure that we squeeze the maximum number of gross rating points out of our euro -- millions of euros of investment.

So as you know, we changed media buying agency again this year to Zenith and we have reaped additional benefits which has allowed us to get more GRPs per euro on the working media spend, and we obviously challenge everything we can on nonworking to maximize the amount of working media we have. So every line of the P&L is subject to challenge.

Now that goes for the cash flow statement as well. We work very hard to maximize the cash delivery for the business as I think you can see from our cash statement for Q3. .

Okay, great. And mentioning the marketing, you pushed out your A&P spending for a couple of quarters now. I know you started to ramp that in September.

How much advertising spend should we expect to see in Q4? And how does that compare to the Q4 2015? And maybe just to follow on, will that increased rate continue into '17 as well?.

So we think we have about the right number of euros. As I've just said, we aim to squeeze more gross rating points out of that number of euros than we have in the past. In terms of the phasing this year, it is going to be back end weighted because we decided to hold off until we had the 360-degree activation launches ready to go in September.

As I commented in the script, September's A&P was up 58% year-on-year. So that gives you some idea of the weight of advertising we're putting into Q4. And that, we expect to continue, not necessarily 58% increases, but we expect to see significant increases through the end of the year.

And our expectation is that the total spend for the year will be broadly the same as 2015. We might not quite get to the 2015 number because obviously, we have a fairly short amount of time left to spend the money, but that's our ambition.

Going forward into 2017, a bit early to be giving guidance, but I mean, I think we will -- we have the right amount of money to spend behind the Must Win Battles. We will obviously because we'll be launching them through the first of the year, even out the phasing. So I think you'll see back-end phase -- back-end loaded phasing this year.

I think we'll see more even phasing this year, but we don't necessarily feel we need more money next year at this point. Clearly, if we see a significant response to advertising and there's a good case to be made for investing more, we would always look at that. But right now, I think we're comfortable with the current levels of advertising. .

So what you really need to remember is it's not savings, it's phasing more than anything else that's very important. So we said that from the start for this year. It makes a lot of sense. Second, it's going to be even more focused next year behind the Must Win Battles, if possible.

And third, we're still going to work further on the efficiency between working money and nonworking money. And we still believe that we have some way to go, which is good news. .

Great, that's helpful.

Paul, can you just break out how much impact the reversal of the bonus accruals had in the quarter?.

Yes. In the quarter, we had about EUR 7 million of releases. So in the quarterly statements of that, I think it was [indiscernible]. .

[ EUR 7.8 million, EUR 7.6 million. ].

Yes. Of the EUR 14 million, about EUR 7 million is releases. Year-to-date, obviously, because you accrue at different rates in the 2 different years, year-to-date, but EUR 3 million. So we had full accruals through to the end of the first half 2016, which we've released in Q3 2016. In 2015, we fell out of bonus achievement earlier.

So we had a relative -- we actually didn't have a release in Q3 last year. But we were still carrying accruals from the first half of about EUR 3 million. So the difference in year-to-date terms is about EUR 3 million, in the quarter, about EUR 7 million. .

Got you.

And finally, Stéfan, I'm not exactly asking for 2017 guidance, but do you think we might see year-over-year revenue growth sometime in 2017 once you activate all your Must Win Battles at least by the end of Q2?.

Thank you, John, for not asking for guidance because it really looks like a guidance, quite frankly. So I'm not going to come to that debate at this stage. We'll come in due time with the right level of guidance. The only thing you need to remember is we're pleased with the results we have achieved so far with Must Win Battles.

It's -- when you think back again, something like 12 months ago, we knew we had the right strategy, but we had -- quite frankly, we didn't know exactly how fast the Must Win Battles would activate and how efficiently. And what you've seen so far is we have been everything but disappointed. .

And next we'll hear from Brian Holland from Consumer Edge Research. .

Just some housekeeping here at the start. What did A&P spend look like relative to your expectation prior to the quarter? Did you make a decision intra-quarter to change the way that you spent A&P this quarter? And if that's the case, just any color on how you thought about that. .

Not really. We did -- I guess, as we looked back at the spend levels, we did in a couple of markets trial advertising over the summer period last year.

So we trialed advertising in Italy, for example, which we don't normally do because, obviously, your base sales are lower and you tend to try and advertise against higher-base sales periods because you get a bigger uplift. But last year, we had some advertising running through July, August.

This year, we pretty much pulled back to barely maintenance levels to preserve firepower in September, which is why you see such a big hike in September. So year-on-year, the phasing was different, but that wasn't out of line with our expectations as we headed into the quarter. .

360 activation is the real criteria for us. .

Sure.

So to clarify, on synergy delivery, you're expecting the levels seen in Q3 to sort of persist through the first half of next year? And then how do we think about the cadence from there? Should synergies start to move higher again sequentially in the back half of '17?.

Yes. I mean, as the French portfolio finishes its transition, you'll have that break taken off. You'll also start to see benefits from the closure of the Bjuv site come through in the second half of next year. And as we progressively roll through contract renegotiation, you'll see some procurement benefits coming through as well. .

And to Paul's point, we're not changing our guidance in terms of synergies, which is EUR 43 million to EUR 48 million by the end of 2018. So yes, definitely, it will accelerate. .

And then most of my questions have been answered.

So just in closing, can you refresh for us how you're approaching M&A, I guess, thinking about your balance sheet, ongoing strategic initiatives and integration on your core portfolio? Do you feel you're in a position to do a deal today? Second, what are kind of -- if you could just sort of reset for us what the ideal parameters you're targeting with respect to size, temperature class, geography, valuation, et cetera.

.

Sure, Brian. So the answer is we're very well positioned to do deals today. We have a reasonably significant amount of cash on the balance sheet due to the inherent cash-generative nature of the business, and we continue to scan the horizon for deals.

I think my ideal deal would be a business that came with probably no factories that we could drop the volumes into our own factories and get significant scale economies from whilst being able to sell or market it without taking on a single extra person. There aren't many of those businesses around, to be honest, but I think we... .

The same category. .

Yes. So we remain focused on highly synergistic deals. So that would be ideally deals in fish, vegetables, poultry or meals in either our current geographies or adjacent geographies where we have gaps in our portfolio.

And the Barclays conference had that slide with the kind of 13 markets, 4 key categories, 52 potential leadership positions, which we have leadership in 35, I think it was. So coloring that chart Nomad blue remains our ambition. We'd also look at adjacent geographies.

So if there are good quality markets that we're not currently present in, where we get opportunity to buy a market-leading position, we would certainly look at that as well. And again, if it comes with or without a factory, it just changes the level of synergies and level of onetime costs you invest as part of the deal. .

And then on the other extreme, you have obviously a factory where we're doing private labels only, which was obviously something they lack, the other extremes, the things we don't want. And then you have a lot of situations in between. Obviously, the closer we get to what the ideal picture described by Paul, the better we are. .

And just as a follow-on there or to clarify, looking for top 1, 2 or 3 market position in the respective categories, is that an important parameter?.

Yes. We believe that there is a strong correlation between return and market position. So I mean, we're obviously #1 in European frozen by a factor of 2.8x and our margins, I think, reflect that kind of position. Within the markets we operate in, we do tend to see a difference in margin between player #1 and where we're #2 or #3.

So we do believe that there is value for our investors in establishing ideally strong #1 positions in each category in each market. Failing that, a decent #2 position can still create a lot of value for our shareholders, particularly if it's part of the business that is #1 overall in the market. And it's a simple question of scale with customers.

So if you're #1 in our 4 key categories, it's very easy to position yourself as a category captain with retailers. And if we build in fish, vegetable, poultry and meals, it allows us to extract scale economies, which again benefits our investors. .

Yes. The correlation between margin and market share is obviously a very important one. And from that, you can immediately see the kind of obvious synergies between a midsized player in one category and the -- or footprint. .

Thank you. And there are no further questions at this time. I'd like to turn the call back to Mr. Stéfan Descheemaeker for any additional or closing remarks. .

firstly, to stabilize top line; secondly, to deliver the predicted synergies; and thirdly, pursuing the highly synergistic deal in European frozen as well as broader strategic transactions globally as a means of delivering value for our shareholders..

With that, I wish you a good day, and I hand back to the operator. .

And thank you. That does conclude today's presentation. Thank you for your participation. You may now disconnect..