Good day, and welcome to the Nomad Foods' Fourth Quarter 2019 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the call over to Taposh Bari, Head of Investor Relations. Please go ahead..

Thanks, Matt, and thank you all for joining us to review our fourth quarter 2019 earnings results. With me on the call today are Chief Executive Officer, Stefan Descheemaeker; and Chief Financial Officer, Samy Zekhout. Before we begin, I would like to draw your attention to the disclaimer here on Slide 2 of our presentation.

This conference call may make forward-looking statements, which are based on our view of the Company's prospects at this time. Actual results may differ due to risks and uncertainties, which are discussed in our press release, our filings with the SEC and this slide in our investor presentation, which includes cautionary language.

We'll also be discussing non-IFRS financial measures during the call today. These non-IFRS financial measures should not be considered a replacement for and should be read together with IFRS results.

Users can find the IFRS to non-IFRS reconciliations within our earnings release and in the appendices at the end of the slide presentation available on our website. Please note that certain financial information within this presentation represents adjusted figures for 2018 and 2019.

All adjusted figures have been adjusted for exceptional acquisition-related share based payment and related expenses as well as non-cash foreign exchange gains or losses. And all comments from hereon will refer to those adjusted numbers.

Finally, users should be aware that 2019 figures have been presented in accordance with IFRS 16, which is the new standard for leases. As such, certain financial metrics may not be directly comparable to 2018 figures, however, we have disclosed the impact of this change in the press release, where the impact on comparability has been deemed material.

And with that, I will hand the call over to Stefan..

Thank you, Taposh, and thank you all for joining us on the call today. Earlier today, we reported fourth quarter and full-year 2019 earnings results, which exceeded the high end of a prior guidance range.

These results are consistent with the commentary that we provided at CAGNY last week and reinforced the strength and sustainability of our business model. Financial highlights from the fourth quarter include organic revenue growth of 1.7%, driven by a 3.2% increase from price, offset by 1.5% decline in volume and mix.

Adjusted gross margin of 29.9%, which was unchanged versus last year. Adjusted EBITDA of €116 million, represents growth, representing growth of 15%. And adjusted EPS of €0.32 per share.

Overall, we pleased to have delivered a 12th consecutive quarter of organic revenue growth, while laying the groundwork for pan-European expansion of Green Cuisine and maintaining our gross margins despite elevated raw material inflation. Turning to the details of the fourth quarter.

Organic revenue growth of 1.7% was broad-based with nine of our 13 core markets growing during the fourth quarter. Growth was led by Germany, Italy and France, while the U.K. and Sweden declined.

Our strategy continues to generate low-single-digit organic revenue growth, with growth in our core, which represent 70% of our sales, outperforming the average. The remaining 30% continue to decline in a controlled manner, with the objective of managing this segment of our portfolio for margin and cash flow.

Taking a closer look at our country performance, we experienced a few variations that I would like to comment further on. Starting with Germany, which achieved organic revenue growth of 9% in the fourth quarter and 8% for the year.

This robust performance was driven by solid execution of core categories and the strategic expansion of our Iglo products into Aldi. Moving on to the U.K., where organic revenues declined 1% during the quarter and increased 2% for the year.

The decline was driven by our decision to prioritize gross margins, which led to some tactical volume loss, which we consider to be transient in nature. The impact of this decision was most acute within our Aunt Bessie's brand, which has a strong seasonal bias toward Q4 and to a lesser extent Q1. Looking out, we expect the U.K.

to decline again in the first quarter before resuming its growth trajectory in Q2, once we begin to recover lost volumes at Aunt Bessie's and begin to activate our exciting plans for the coming year, including the expansion of the Green Cuisine range. Finally, Sweden, which declined 15% during the fourth quarter and 7% for the year.

This is our most challenging market and one, where I firmly believe our issues are executional in nature. Sweden has not only the highest per capital consumption of frozen food in Europe, but is also one of the fastest growing frozen food markets.

Our Findus brand has Number 1 market share despite the challenges and is very much in line with the consumer movement toward high quality food, which is great tasting, convenient and sustainable.

Going back to execution, this is a market where we are frankly lack focus and discipline and as a result have yet to successfully replicate a Nomad Food growth model that have served us very well in many of our other European countries. With that said, we have an action plan in place and believe that future for Sweden is full of promise.

I have appointed a new management team at the beginning of this year and I have a series of actions to not only stabilize the business, but to return it to profitable growth year in and year out.

This will start with a rigorous focus on the retail partners and our consumers, as well as leveraging our strong heritage or -- in distinctive assets and our capabilities within the broader Nomad Foods organization. We believe that the turnaround in Sweden will require hard work and as a result, take more time.

With that being said, the EBITDA implications are likely to be relatively contained, given the low margin profile of this country today. Turning to gross margins. We happy to have maintained our Q4 gross margins versus the prior year, which were somewhat ahead of our latest expectations.

We successfully navigated raw material inflation in 2019, delivering in both low-single-digit organic revenue growth and slight gross margin expansion before the effect of M&A. I'm proud of the way our entire organization took on the challenge of inflation in 2019. As anticipated, our cash generation was strong during the fourth quarter.

We generated over €200 million of free cash flow during the year, bringing our net leverage down to mid-2s and our cash on hand to over €800 million. We enter 2020 in a position of financial strength and remain on the offensive on acquisitions. We remain actively engaged and look forward to sharing news at the appropriate time.

As you heard us describe at the CAGNY Conference last week, our near-term priority and focus are on mid-sized European frozen food assets, where we believe we can create value for our shareholders. Our balance sheet and cash flow outlook provides us ample capacity to pursue these types of deals.

And finally, we further develop Green Cuisine, our plant protein sub-brand with strong in-market performance in the U.K. and preparations to launch the range across continental Europe in 2020.

In less than 12 months on shelf, Green Cuisine has already become the Number 3 selling frozen plant protein brand in U.K., putting it ahead of some very notable brands. Our products in advertising campaign have been very well received by consumers and retailers, paving the way for an even broader assortment and shelf space for this range in 2020.

We mentioned at CAGNY that we plan to expand Green Cuisine beyond the U.K. and Ireland, which first launched the range in spring 2019. We have an ambitious launch calendar for the coming year, including the expansion of -- to at least six new countries in the first half of 2020.

I'm pleased to share that Green Cuisine went live in Germany in January and is scheduled to enter France next week. We are excited to have created a uniquely positioned brand built on the principles taste, convenience and sustainability, which we believe will translate across the frozen food aisle in Europe.

We know we have a strong right to win in this dynamic subcategory of frozen and look forward to watching this exciting business develop over the coming year. To repeat what we said at the CAGNY last week, we expect Green Cuisine to generate over €100 million in revenues by 2022.

Before turning the call over to Samy, I would like to provide you with some high level thoughts on our plans for 2020, which called for fourth quarter -- consecutive year of organic revenue growth and adjusted EBITDA of €400 million to €445 million.

We have a strong pipeline of new product launches, media activations and promotion plans to support our top line plans. Revenue growth is expected to be more balanced between price and volume versus what we experienced in 2019. I mentioned Green Cuisine as a growth engine.

We also expect our existing base business to grow as we look for flywheel to spin even faster. Green Cuisine is a gross margin accretive business for us and one with significant headroom for growth longer term.

Given our ambition to be the sustainable business year, you will see us reinvesting nearly all of our gross profit from Green Cuisine into SG&A in year one and to a lesser extent in year two. We expect to face a second year of above average inflation in 2020, due to a combination of some continued raw material inflation and forex.

With that said, we're seeing signs of stabilization on the inflationary front, particularly on fish prices. In sum, we expect that our gross margin will be relatively unchanged versus last year, that our adjusted EBITDA will grow to 2%, 3% in 2020.

This is somewhat below our long-term algorithm of mid-single-digit EBITDA growth, but an outcome that will result in profitable growth and will enable momentum to continue into 2021 and beyond. As we stated last week, we remain confident in our ability to deliver against the algorithm and view this year as an outlier.

In summary, we pleased with the result and excited for the year ahead. We have a full slate of strategic initiatives in place, which will fuel another year of organic revenue and EBITDA growth.

Our balance sheet remains a strong competitive advantage, which we expect in due course will translate into a strong source of earnings and cash flow to complement our base business. With that, I will hand the call over to Samy to discuss the financials and guidance in more detail.

Samy?.

Thank you, Stefan, and thank you all for your participation on the call today. Turning to Slide 6. I will provide more detail on our key fourth quarter operating metrics, beginning with revenues, which increased 2% to €628 million, driven by 1.7% organic revenue growth.

Growth was led by Germany, France and Italy and partly benefited from early deliveries related to January promotional activity. Fourth quarter adjusted gross margin was 29.9%, slightly ahead of plans and unchanged versus the prior year. Gross margins benefited from pricing and promotional activity, which offset cost of good inflation.

Moving down to the rest of the P&L. Adjusted operating expenses decreased 6% year-over-year, reflecting phasing shift, which we had planned for. Within operating expenses, A&P declined 11%, and Indirect declined 3%.

Adjusted EBITDA was a €116 million, and as expected included a €4 million benefit related to IFRS 16, the new standard on lease accounting effective this year. Excluding this benefit, adjusted EBITDA grew 11% versus the prior year. Adjusted EPS was €0.32 for the quarter, increasing 10%.

IFRS 16 did not have a material impact on EPS during the fourth quarter. Turning to Slide 7. I would like to review the P&L highlights for the full-year 2019 results. Revenue increased 7%, driven by 2.1% organic revenue growth and 4.9 percentage points from acquisitions.

We are very pleased to have delivered a third consecutive year of organic revenue growth, in line with our long term growth algorithm in the low-single-digit range. Adjusted gross margin was 30% in 2019, down 30 basis points versus the prior year.

The negative effect from M&A mix had a 50 basis points impact, resulting in like-for-like gross margin improvement of 20 basis points. Winding out the rest of the P&L. Operating expenses increased 2% for the year driven by a 3% increase in Indirect, while A&P down marginally year-on-year.

Adjusted EBITDA increased 15% to €432 million with IFRS 16 representing an €8 million benefit. Excluding this benefit, adjusted EBITDA grew 10% versus the prior year. Adjusted EPS was €1.23 for the year, increasing 3%. IFRS 16 did not have a material impact on full-year EPS. Turning to cash flow on Slide 8.

We generated €228 million of adjusted free cash flow in 2019 compared to €286 million in 2018.

Factors contributing to adjusted free cash flow performance included adjusted EBITDA of €432 million, a 15% year-on-year increase; working capital outflow of €44 million; capex of €47 million, representing 2% of sales; cash taxes of €46 million, representing a cash tax rate of 15%; and interest and others of €67 million, due primarily to the reallocation of lease payment from operating cash flow to financing cash flow as a result of IFRS 16.

We converted 97% of our adjusted EBITDA into adjusted free cash flow, marking a significant improvement versus where we were as of quarter three. With that, let's turn to Slide 9 to review our 2020 guidance, which is based on foreign exchange rates as of February 25, 2020.

For the full-year 2020, we expect to achieve adjusted EBITDA of approximately €440 million to €445 million and adjusted EPS of €1.19 to €1.21. Full-year guidance assume organic revenue growth at the low-single-digit percentage rate and the share count of 204 million.

The guidance does not reflect the potential accretion from any acquisition that we announced in 2020. As a reminder, we have over €800 million cash on our balance sheet and are actively engaged on a number of prospective deals. A few other modeling point for you to consider.

In terms of phasing, we expect adjusted EBITDA to decline double-digit percent year-on-year in Q1, stabilize in Q2 and grow in Q3 and Q4. This is due to both gross margin phasing and the timing of A&P, which will be front-loaded in 2020, in advance of our Green Cuisine launch across Continental Europe.

Aside from expenses, Q1 is also expected to be impacted by relatively flat organic sales due to a combination of some shipments timing from Q4 and our expectation for the U.K. and Sweden to decline. However, given our plans for the U.K.

to soon return to growth, we do expect stronger organic revenue performance for the remaining three quarters of the year, beginning in Q2. Finally, gross margins are expected to be roughly flat versus 2019, with year-on-year performance expected to improve throughout the year. That concludes our remarks. I will now turn the session over to Q&A.

Thank you. Matt, back to you..

[Operator Instructions]. Our first question will come from Andrew Lazar with Barclays..

Hi, there. Two questions from me. I guess, first, at CAGNY last week and then again, this morning, you discussed the expected cadence for the year on both organic sales and in EBITDA. On the top line, it sounds as though the softness is more specific to 1Q, EBITDA, as you said, a little more second half weighted.

I was hoping you could provide a bit more color maybe with whatever specifics you have that sort of add to your visibility to the drivers for each of these. And I've got a follow up. Thank you..

Okay. So let me start with the sales side and Samy will go with the EBITDA more specifically. But it's a series of elements that makes us confident for Q2, Andrew. The first thing is, in the start -- always starting with the three negotiations and then three negotiations have gone well.

And so we do expect to reset -- to repair some of the key relationship this year and we had some disruption last year. And so the negotiations are complete in some of our larger countries, so that's why we -- it makes us obviously more confident. The second piece is something, which was already known last week actually at CAGNY is Green Cuisine.

So we will enter at least six new countries in H1, probably more, with the bulk of that activity really starting in Q2. That will coincide with the multi-channel market campaign that we will launch really around the spring time frame. So that's the second piece.

And the third piece, which was -- which is more factual even is that in Q1, the big over rank was really during the month of January, where we saw an expected decline. The business has returned to growth in February and we expect that trend to continues for the reasons I mentioned.

So this is a bit -- the trajectory between Q1 and Q2 in terms of sales..

And the third one was -- again, I just want to make sure I misheard you, the third one, the factual one?.

It's just -- January was as expected for us, it was -- went to -- into decline and then what we've seen is February has returned to growth and we expect that trend will continue in March. So that's more factual in the numbers we see..

Okay, Andrew. Maybe I'll just give one, let's say short sentence on the EBITDA perspective. Because I mean, the point is effective with this imbalance. I would say the reality is that this G&A is planned to be front-loaded in particular in Q1, ahead of our launch on Green Cuisine as we establish the brand ahead of the commercial exploitation in store.

Gross margin trend will show us -- to us steady progress throughout the year based on the timing of inflation as we discussed last week, mix benefit as well from Green Cuisine and supply chain savings that are going to come gradually stronger toward the end of the year..

And then, I know Nomad's first priority for cash on the balance sheet is acquisitions.

That being said, I guess, with the equity trading at below sort of 10 times EV to EBITDA, why not use, I guess, a portion maybe to buyback some of your own shares, as I would think the Company certainly has the flexibility to do both buybacks and deals, particularly as it seems the sorts of deals being consider or likely more bolt-on or medium size in nature.

So I guess, I'm just asking, if the two need to be mutually exclusive? Thanks very much..

As you know, Andrew, nothing is taboo, we did in the past. It's obviously, something that we always evaluating at the Board level.

In the meantime, we are firmly engaged in the -- in this M&A process and we think that in the mid -- in the near term, things that we see ahead of us are obviously, the kind of target that will add more value than the buyback at this stage..

And our next question will come from Steve Strycula with UBS..

So Stefan, I'd like to ask an operational question about digging into Sweden and the U.K. a little bit more. Sounds like, we're dragging along the bottom and maybe there is some opportunity to improve each of these businesses, given some of the leadership changes that are under way.

Can you spend a little bit more time explaining to us what exactly happened with Aunt Bessie's in the U.K.? What was the strategic decision that was made? And then ultimately, how it corrects by, call it Q2? And the same exercise through Sweden, I think, would be helpful, just so we understand what's really kind of going on here and what is, Samy, is the profitability implications, if these two businesses are fixed or does it move the needle? Thank you, and then, I have a follow up..

Okay. Let me before starting and go into the specifics, Steve, let me clearly make a difference between U.K. and Sweden. U.K. overall, the business is doing well. We had a more difficult year last year. Probably, partly because we had to integrate three business into one, and that took a lot of energy, but overall the business is doing well.

What happened with Aunt Bessie's is, at some stage, we were confronted with a very high level of promotion from some of our competitors and we decided in terms of gross profit that we needed to pass at this stage.

We confident that, what is really strategic for us in terms of Aunt Bessie's, we will be back at some stage in the course of the year as for other categories in the U.K. So, I can see, when we're talking about U.K. coming back to growth in Q2, that's exactly what we mean and we very confident with the team. The team is doing an excellent job.

And as you know, and in terms of sales and in terms of gross profit and in terms of EBITDA, this is one of our biggest, obviously, operation and an operation that we like. Can we always do better? Absolutely.

So there's definitely after this one or two disruptions we had, obviously, the Company, the team have obviously went through some sort of, what can we do better, what can we improve. And I think, what I've seen is, I'm very pleased with the plans we have ahead of us in 2020.

Sweden is a bit different, Steve, and let me first, quantify what Sweden is all about,in terms of sales is one thing. It's not negligible. In terms of EBITDA, it's today around 2%. So that's what it is. So definitely, we need to turn that around. And as I said, it's a very much operational in nature.

I think, we lost a bit the focus and I think, it's starting with me by the way. I think, as you know, I could have done better from that standpoint. And we have reacted in the meantime in the very handsome way. So we've changed the team. The team that we now have in place is very strong.

It is now obviously also overseen by Wayne Hudson who is now in-charge of the U.K., Ireland and the Nordics. And I'm very confident that with very hands-on approach, he will make a big difference. The thing is the difference with you between the U.K. and Sweden is where we have a very clear plan to go back to growth in the course of Q2, with the U.K.

staggered way above, however, because it's going to take some times in retailer-by-retailer and we know what it is. I think, it's going to take more time in Sweden. One big learning is they need to Sweden, they need to be closer to the strategic approach we have taken with Nomad since the beginning, which has paid off very well.

I think, we also need to make sure that they have access to all the, let's say, the learnings and the skill developed by the central team in in the U.K. And obviously, that the people are ready to go for it. So we've been through a turnaround in the past.

Let me give you now two examples One is the big one, that's the one, obviously, of Nomad in 2015, 2016 and earlier, in something like last year, for example, we were going Norway and Spain. We've changed a lot of things, including by the way some of the key players and I can tell you, I'm very pleased with what the Spain is doing.

So we're expecting the same kind of, let's say, action in Sweden. And in terms of portfolio, in terms of pricing, trade relationship is absolutely key. It's one of the key things that we're missing at this stage and innovation as well.

And at the same time, it's only 2% of our EBITDA, but it could be much more, that's really what the opportunity is for us because the market as such is -- volume-wise and sales-wise is a good market. So again, I think, we have no excuse, but to succeed..

Okay. And then a very quick question for Samy. You had €235 million of free cash flow this year, how should we think about that trending directionally? Is it get a little bit better in 2020? Any kind of puts and takes? And then I'll pass along..

We'll -- thanks, Steve. I mean, we'll be -- we're still committed to deliver about 100% of free cash flow productivity and that's clearly the goal we're putting in place action to continue to deliver kind of cash performance..

Our next question will come from Rob Dickerson with Jefferies..

Stefan, just a question around Green Cuisine and I guess, plant based alternative meat in general, entering six new countries, faster growth expectations obviously, for the brand and the category.

Looks like, based on your estimates, depending on the cadence of that €100 million over three years, it could, let's say, add even 1% to the top line per year. So if we think about that category relative to the core kind of where frozen is now.

Do you view the plant based piece and the Green Cuisine piece obviously is incremental relative to distribution opportunity with the retailers, but then also to the top line and then also just the category growth? Thanks..

So the answer is yes, to make it simple. It's a new category. We expect the cannibalization that will be reasonably low. I think, it will take probably some market share away from, let's say -- that's the purpose by the way. One of the purpose is to take market share away from meat as such and -- which comes very handy for us.

In terms of gross margin, as we mentioned already in the CAGNY that the gross margin should be accretive to the average of our business, which is great news. So yes, I think, we can only see good things with Green Cuisine and the level very important as well.

In some -- the kind of things you don't see obviously in the numbers, Rob, is the level of intentionality at the country level is really very, very high. So people really are excited. They are ready to go for it. And importantly, is also -- it's not like innovation -- once -- one shot and then it's over.

I think, if you want to be successful innovation, you have to be ready to invest year in, year out, that's key. Otherwise, it's just -- it's a nice number in your total sales for one year and then it's going down. We don't expect to do go that way. We have -- we want to really further invest.

So -- and it's a -- I don't have to obviously refer it back to Andrew and what he mentioned about Green Cuisine -- about plant protein, but it's really something where we see a win-win between ourselves, the retailer and the consumers..

Okay, perfect. And then just quickly, in terms of acquisition focus, I've heard you and Mr. Franklin and others discuss different areas you could go over time. I've heard looking at different countries, broadening the scope.

I've now also heard you, let's say, feel like more specifically the past six months or you're definitely saying, we're focused more on that kind of mid-size frozen core within Western Europe or within Europe.

So I'm just curious kind of, given some detail or more detail you've given in the past, if there is anymore color that you can provide with respect to category focus? Is we like yes, we would love to be in frozen pizza, ice cream would be interesting or is it more broadly, hey, we're just looking for opportunities? Thanks..

Well, I think you have to see that in layers. The short to mid term priority is definitely to complete the game in frozen food in Europe. We are the undisputed leader. And then, I mean, we have to see country-by-country, category-by-category and channel-by-channel where we can go.

I think, we have not changed our plans, in other words, we are going to invest and acquire where we think we can make a difference, where we can lead, and then definitely, the good starting point is our current position in frozen food in Europe. So that's I think, it's very consistent with what we said..

Okay, perfect. Thank you so much..

You're welcome. Rob..

Thanks, Rob..

And our next question will come from John Baumgartner with Wells Fargo..

Good morning. Thanks for the question..

Hey, John.

How are you doing?.

As we kind of think about the evolution toward that long term EBITDA margin target and in terms of net revenue management, in 2019, I think four of the five levers that drive and proven there attain advanced status by your definition. I am assuming that product doesn't just hit a wall thereafter.

So is there a way to think about, even the advance levers continued to improve in a second generation or a third generation and so on.

And of those five, NRM levers, which do you think will prove most impactful for that program going forward?.

I think, this is a process that needs constant reinvention, John, I think you're hitting on a very important point on that one, because at the end of the say, it's an ongoing program and the advance element that you see there in the classification that we have on the different lever really correspond to the capability we have been building and the impact on the business.

We have to reinvent ourselves in many ways in terms of the capacity changing and so effectively, we have to apply judgment, if you also, when it comes to pricing. PPA in some situation becomes, I think an opportunity for driving incremental sales one way or the other.

We have to remaster the different elements relating to what the consumer can bear with and what the retailer can bear with. Big opportunity for us as we manufacture on Hull [indiscernible] side, Okay?So at this stage, it's not an element which is about less, but it's about clearly investing more to get a better return on that.

That's the skill set probably that we need to further grow in the similar, i think overall NRM. But we view that as an opportunity for us to constantly reinvent ourselves, reflecting the learning from the past. If we optimize promotions one year, we will have to optimize them the next year.

We will get new learnings, given the fact that competition doesn't stand still on that. So we still view that as a big lever for accelerating our growth overall, however, as you have heard from us, I mean 2020 marks as well a point where we would want to balance the growth between effectively the pricing side and volume in many ways.

So I think that's the thing, which we will be taking into account as we move forward..

And then just to follow up in terms of Green Cuisine.

Wondering, if you could provide a bit more context there in terms of how the plant based ramp come together, because it sounds like there is not really a lot of CapEx on your end and look at Nestle, they've jumped in pretty quickly with some partnerships with operators, further up the supply chain.

So how do you assess the role of third parties here, whether it's R&D or manufacturing as you kind of build this up? And how much to lean on outsiders going forward do you think?.

You're right in terms of CapEx at this stage is reasonably limited. We have very strong partnership with suppliers. These are very strategic partnership and we very pleased with what we have at this stage with these guys, which is fine, that's one thing.

Second thing is, we also have a strong R&D department that's really going from obviously what is provided by the suppliers. How can we make sure that we find the sweet spot between, let's say, taste, health and sustainability and that's basically -- that's where we spend most of our time, our energy to find exactly the sweet spot.

It's not CapEx, but I can tell you it's time, it's P&L as such. It's not easy, I think, the initial product, quite frankly, between us, John, we're great from the sustainability standpoint. We're great from the health standpoint and we're terribly boring and we were not pleased with that and so we have improved over time.

And we found something, which we believe is really -- well, I mean, I would never say spot on, because we can always improve, but it's really a nice sweet spot between all the things.

So that at this stage -- should we at some stage go to further vertical? Maybe, but at this stage, we don't think it makes a lot of sense, because what we see is we have all the fundamentals already, the product is great. We are -- frozen food is -- it's really all category.

We have the go-to-market, so we don't need to invest behind go-to-market, that's also fundamental. And we are coming with something, which create value in terms of gross margin and further. So that's that at this stage, so at this stage, quite frankly, there is no real need to further invest. Capex is -- let's say, we have the capacity.

We know what we can do and it really -- it goes way, way, way beyond our expectations, I can tell you we will be very, very pleased to spend the CapEx that is necessary. And you know that our balance sheet is ready for that..

Next question will come from Jon Tanwanteng with CJS Securities..

My first one is for Sam -- just for Samy.

How much revenue did you pull into Q4, and how much expense did you push out into Q1 or beyond? Just want to get those numbers, if you could?.

About 1%..

What, 1% of sales?.

1% of sales, yes..

Okay.

And then on the expense side?.

About, even no, no....

No..

No change. Nothing..

Okay, got it. Second, just because someone has to ask it.

How are you positioning for potential coronavirus impacts, maybe to start with Italy and your exposure there, but also across the continent? And then further, do you guys actually benefit from people staying home, buying frozen food or does it go the other way for you?.

Well, it's a good question, Jon. Let me let me handle that. First, about the numbers, you're right. Italy is a big market for us. It's around 17% of our business. So it's big and quite frankly, nice margin, so it's an important one.

So that's a bit of context today, but your point, it could go to -- it could go beyond and obviously, what we're doing right now, what we are preparing or the way we are preparing ourselves in Italy, whether we like it or not is an interesting test and learn for the rest of the organization, if that happens.

But the priority number one -- and we don't talk enough about this, the priority number one is to ensure the safety of our employees. So we have plans, we have, let's say, global incident management team, which is ready. It's centralized, it's starting from different countries and obviously, we follow very, very carefully all the WHO guidelines.

And then, as you know, it is very much fluid process. It is changing sometimes by the hour. So that's one thing and that's our priority number one. From the commercial standpoint, it's interesting to see that in Italy, which is expected. You have a lot of consumers, I mean, doing obviously over expanding and spending a lot behind behind frozen food.

Frozen food from that standpoint is, I would say from my experience in the U.S, it's a bit like a bit of a storm, when the people are rushing into the stores before the storm. So there is a bit of that.

By the way which sometimes, actually to some extent, I think it was yesterday and day before, created some options for us in terms of coping with demand, not limited to Italy by the way, but not that produced only in Italy, within other countries.

So we're making sure that we have the appropriate inventory safety stock, so if needed, obviously, we will push the production even further, which is something we are doing already to some extent. And beyond that, if you're going a bit further into the supply chain, we have a reasonably small supply exposure to China, mostly in fish.

And again, we have strong contingency plans in place to work through the situation. We have already found some alternatives in other countries, which is fine. So we feel safe. So obviously, as all of us, we planning for the worst and then it's very split situation and we hoping for the best.

But the short at this stage, even in Italy, the situation is really under control. So that yes, I forgot to mention as well, we have a local plan in Italy, that's a competitive advantage..

Okay, great, thanks for that color. Finally, just on the meat-free and Green Cuisine side.

Is that €100 million in revenue a run rate exiting 2020 or it is realized? And also just getting to that €100 million require more investment then you usually would make maybe outside of your standard NPD or promotion budgets?.

Its realized, that's one thing. Second, in terms of investment and to your point, you're right to not to mention necessary capex or whatever. In terms of SG&A, in terms of A&P, we require a lot.

So as you know, that's something we mentioned last week in CAGNY that we're going to reinvest most of our gross profit for year one, obviously, year one behind the A&P. So that's an important investment and we're not going to limit it to year one, but don't get me wrong.

I think, it's going to go down, as obviously, the volume stands will go up, the proportion will go down, but definitely, it's an important investment year-after-year.

So the worst mistake in innovation is to come with a big push year one and then not to have the patience year two, because you have another round of innovation that seem to be more exciting in all these things. So that's not what we want to do. We know it is strategic for us.

It's innovation, it's strategic, it's a white space and we have what it takes to win. And by the way, I forgot to mention as well that, the gross margin in average is very nice. So it's accretive for us in terms of gross margin, and which gives us space, obviously, to further invest..

Our next question will come from Bill Chappell with SunTrust Robinson Humphrey..

Just going back to the -- kind of the U.K. and particularly, Aunt Bessie's and Goodfella's. I mean, one on Aunt Bessie's.

I was not aware that there was that much competition for frozen Yorkshire puddings around the world, so maybe you can help me understand how you're seeing promotional efforts there? And then two, with regards to that, how are the -- what you're seeing now with kind of organic sales declines with Aunt Bessie's and it sounds like Goodfella's are doing fine.

How does that change your outlook as you're looking at these mid-size acquisitions?.

Well, to soon clarify Aunt Bessie's, there is no real strong competition in Yorkshire pudding as such, which is the bulk of our must-win battle by the way, that's one thing, but Aunt Bessie's is not limited to Yorkshire pudding. It's -- there is also potatoes and in potatoes, you have -- to make it simple, you have two big pieces.

One is roast potatoes, which is also part of our must-win battles together by the way with the Yorkshire pudding. I mean, I'm getting to -- into the technicalities here and you have chips. Chips is not a must-win battle for us. It's really today dominated by McCain and so that's where the competition has been.

And that's where to some extent we lost in terms of distribution at this stage and that's where definitely in the potato arena that we want to get back in. So that's the objective. So the learning, I would put it that way, again, overall with both, we pleased with Goodfella's and with Aunt Bessie's. Some went better, some went worse.

But again, I think the top line is -- I'm not -- I don't have any reason to believe that we -- that the top line is not going to go the right way, so that should be -- that should go back, but probably something we slightly underestimated learnings is obviously, the level of reaction of some of the competitors once they see the number one in frozen coming in.

If you have obviously a big competitor, that's a learning and not obviously something that we're going to put into consider -- to included in our future acquisitions..

And then again, on that same line. I mean, what are you expecting for Green Cuisine in terms of competition, because I mean, I think, you're the only -- or the -- certainly, the largest player kind of pushing it out at your price points. Most of the -- rest of the competition is at higher price point. So are you expecting....

No..

A competitive response and when we're modeling, are we assuming that most of the investment is coming in advertising and marketing or there are going to be some trade promotions to try to have even more of a price gap to drive trial?.

I think you need to make the difference between U.K., which is already a market that is reasonably well penetrated. And we mentioned that we are number three player, which means that you have a number one and number two.

The number one is Con, so it's a big competitor and it's a traditional competitor that is going to work and compete with the same kind of weapons we do have today, combination of innovation, A&P distribution, the noble FMCG tools. In other countries, it is much, much more fragmented.

It's much more small -- small players and then the game is different for us and we obviously going to gain faster probably a very strong position. That's where I think, that's how we're going to compete. So U.K., one thing and the others another way. This being said, what we've seen in the U.K.

is the customers and the consumers by the way are very pleased with our products. We plan to expand the range, very much like the Germans, then they're not limiting themselves to three SKUs. They are going much further, which is probably going to be the approach for most of the countries..

Got it. Thanks for the color..

Once again, we will hear from Steve Strycula with UBS..

Hi. Just one quick follow up question. On Italy, appreciate the context of how much sales exposure it is, but Stefan, could you just clarify, have there been any supply chain disruption issues today? That will be part one.

And then part two, have there been any commercial sales disruptions within Italy, meaning is consumer takeaway in the stores then positively impacted from pantry loading, negatively impacted? Any type of clarification on those two items would be appreciated. Thank you..

The answer is no. At this stage, we haven't seen any supply disruption, all the way through, by the way. So obviously, from us being supplied in terms of commodities and raw material to us supplying the retailers.

What we've seen is, as I told you, is we've seen in some cities, we have seen some obviously, especially in the traditional trade, and I'm going very micro here in the traditional trade small mom and pops. We've seen some people going out of stock at this stage and we're working together with them to find some solution obviously to be supply.

So that's not that easy in these 11 cities that we mentioning because you have to quarantine, sorry. So that's little a bit more complicated. But we are ready and with all the other big guys, the Esselunga, the Conad of the world, the Carrefour of the world in Italy, it's a normal supply process at this stage. And as I said, sales are strong..

All right. Thanks..

Your next question will come from Robert Moskow with Credit Suisse..

Hi. Thanks. This is Jake Nivasch on for Rob. Thanks for the question. Just a quick one here. So just to clarify what happened with price negotiations with retailers.

At CAGNY, it sounded like you were saying that you couldn't fully raise price to offset the fish inflation, have you fully offset that? Have you fully raised price to offset the cost?.

The point on that is, I don't think, we necessarily said what you have said. I think what we said is, I think, you were in the middle of the negotiation, I mean, ending in some countries and others. And at this stage, we have a pretty good return on the conversation we had on executing our price increase.

What we did say is that, we made some strategic choices on pricing wherever there was a change in the competitive environment.

The one thing that we're focused at is making sure that we don't let share go away and that we have to defend our business and therefore, wherever that made sense, we leverage the totality of the mix in the portfolio in order to execute the pricing in totality, not necessary to applying category-by-category the pricing required to cover inflation..

Got it. Thank you. And just one follow up here. You might have mentioned it, but just another clarification.

Did supply chain productivity fall below your expectations in 2019? And if not, are you building off this momentum heading into 2020?.

The answer is no. You may remember that we were -- I was not pleased with the performance in 2018, but I also said that we've made a lot of progress in 2019, and I can tell you what I see is -- it's going to continue. So they keep raising the bar..

We are planting the seeds for a strong program as we had mentioned over, let's say, year-on-year productivity that would be a substantial contributor to our growth.

And that goes through a very well structured plan plant-by-plant and a product-by-product to make sure that we generate this productivity to enable us to grow the business, bottom line and as well reinvest as well in the category that are delivering great returns..

We have no further question at this time. I will turn the call back over to Stefan Descheemaeker with any additional or closing remarks..

Okay. Thank you very much. So thank you for participating on our fourth quarter earnings call. We pleased to have delivered a third consecutive year of profitable organic revenue growth and have an exciting set of plans in 2020, including the pan-European launch of our meat-free range, Green Cuisine.

Our balance sheet is strong, providing us significant capacity to consider acquisitions in the coming month, quarters and years. Thank you for your time, and we look forward to updating you on our progress when we report Q1 earnings in early May..

And this concludes our call for today. Thank you for your participation. You may now disconnect..