Hello, and welcome to the Nomad Foods Third Quarter, 2021 Earnings Call. I'm Taposh Bari, Head of Investor Relations, and I'm joined on the call by Stefan Descheemaeker, our CEO; and Samy Zekhout, our CFO. On our call today, we will review our financial results for the quarter and conclude with a question-and-answer session [Operator Instructions].

Before we begin, I would like to draw your attention to the disclaimer on Slide 2 of our presentation. This conference call may make forward-looking statements that are based on our view of the company's prospects, expectations and intentions at this time, including consideration related to the impacts of COVID-19.

Actual results may differ due to risks and uncertainties, which are discussed in our press release, our filings with the SEC and this slide in our investor presentation, which includes cautionary language. We will also discuss non-IFRS financial measures during the call today.

These non-IFRS financial measures should not be considered a replacement for and should be read together with IFRS results. Users may 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 Web site.

Please note that certain financial information within the presentation represents adjusted figures for 2020 and 2021. All adjusted figures have been adjusted for exceptional items, acquisition-related, share-based payment and related expenses as well as noncash foreign exchange gains or losses.

And all comments from here on will refer to those adjusted numbers. 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 this morning, we reported third quarter financial results and reiterated our plans to deliver double-digit adjusted EPS growth in 2021.

These results built on the exceptional performance we achieved last year and are consistent with the business update that we provided a few weeks ago. As you know, the macro backdrop is quite challenging for many in the food industry between tough comps, inflation and supply chain disruptions.

While we would prefer a more commodity environment, I'm proud of how our team has responded, the fact that we are on pace to achieve another year of record results in 2021. With that, let's begin with the third quarter financial highlights.

We achieved revenue growth of 4%, driven by the acquisition of Findus Switzerland and favorable ForEx translation. Organic revenues were up mid-single digits relative to the third quarter of 2019. The declined 1.4% versus the prior year to the anniversary of elevated demand and normalizing category trends.

Adjusted gross margins declined 240 basis points or 200 basis points on a like-for-like basis when excluding dilution from Findus Switzerland, with initial gross margins are below those of our base business. Adjusted EBITDA grew to EUR 113 million, representing 4% growth versus last year and a 9% CAGR versus 2019.

And finally, adjusted EPS was EUR 0.35 per share, representing 17% growth versus the third quarter of 2020 in a 2-year CAGR of 18%. Our third quarter revenues, adjusted EBITDA and adjusted EPS were the highest of any third quarter in the company's history and built on the strong results we achieved last year.

This performance was driven by several factors, namely improving market share trends, disciplined cost management and accretive capital allocation. These are defining attributes of our value creation model that have been key to our success and continue to fuel the performance as we navigate a challenging macro backdrop.

As you know, we've been working hard on improving our service levels and capacity situation to return to market share growth. I'm happy to say that our market share expanded in Q3 and has shown consistent improvement since May.

While we still have selected pockets of raw material and supply challenges, our service levels have improved across most of our business. Taking a closer look at the broader packaged food environment in Europe, where vaccination rates are relatively high.

We're seeing consumers returning back to work in a corresponding recovery in out-of-home consumption. This results in a low single-digit percentage decline in the frozen food category during the third quarter versus the prior year.

As we navigate through this period of transition, we are directing our attention to areas where we have the most control over the outcome. This starts with market share, and we are encouraged to see a significantly improving trajectory over the past 6 months.

The normalization of category growth has been compounded by a series of industry-wide supply chain issues, many of which have been well documented. Raw material costs are on the rise. The labor market is tight and supply chains are under stress.

Our supply chain organization has navigated this challenge well this year, resulting in stable gross margin through the first 9 months of the year. We expect these macro factors to intensify in 2022 and are prepared to leverage our revenue growth management capabilities to mitigate exposure.

As we deliver against our near-term financial objectives, we are also making the necessary investments to support long-term growth. Sustainability has been a key strategic priority and an area where we were quite active during the third quarter.

As a frozen food company anchored in fish and vegetables, we have a portfolio that is inherently advantaged in helping consumers make better choices when it comes to nutrition and sustainability. You've heard the statistics, but they are worth repeating.

First, the food industry accounts for 1/3 of greenhouse gas emissions and 1/3 of that food goes to waste. Supported by life cycle assessment, we know that our frozen food brands have credibility, awareness and scale in helping consumers make an impact on climate change, starting with the reduction of food waste.

Second, 90% of our base portfolio is considered a healthy meal choice, creating strong alignment with consumer trends and the strategies of our retailers who are looking to carry and ship products.

We are developing a fast-growing plant protein business in Green Cuisine, a business that is on pace to nearly double in 2021 and has accumulated double-digit market share in only 2 years.

Green Cuisine continues to be Europe's fastest growing frozen meat-free brand and has established a diversified portfolio, which now includes chicken-less and fish-less products. And finally, as of last month, 100% of our existing factories are on renewable electricity, an achievement that we are very proud of.

We took 2 important steps to further advance our sustainability strategy during the third quarter. First, we joined the race to 0, announcing plans to significantly reduce our greenhouse gas emissions with approved science-based targets across our operations and our supply chain.

These targets, which include a 50% reduction in our operations per ton scope 1, 2 and 3 emissions by 2025 are consistent with the reductions required to keep global warming to 1.5 degrees. Second, we announced a collaboration with BlueNalu to introduce cell-cultured seafood to Europe.

This agreement the first of its kind in Europe underpins our commitment to sustainable growth and the development and scaling of emerging food technologies. BlueNalu is a leader in cell-cultured seafood and have developed breakthrough technology that aligns with the purpose of serving the world with better food.

We're excited to see what the combination of the cell-cultured technology and our brands, consumer insights, scale and route to market can lead to in the coming years.

Finally, we completed the acquisition of Fortenova's frozen food business and transaction, which is expected to result in over $2 of adjusted EPS on the combined and annualized basis in 2021 based on current ForEx rates. Fortenova is a business with significant strategic value to Nomad Foods and with multiple levers for value creation.

Fortenova resembles our existing business in many ways. It has market-leading brands in Ledo and Frikom. These brands have incredible consumer awareness in their respective markets, and similar to Birds Eye, Iglo and Findus represents high-quality frozen food in countries like Croatia, Serbia and many others in the [Indiscernible] regions.

50% of the business is in frozen savory with a high concentration in fish and vegetables, similar to our portfolio. We believe we bring significant commercial and operational expertise in these categories, across capabilities such as portfolio strategy, sales, insights, marketing and revenue growth management.

Fortenova also has a leading ice cream portfolio, which is highly synergistic with the savory side of the [Indiscernible] business. and introduces a highly profitable and interesting category to our portfolio.

While it is very early days, I can tell you that the organization is excited to join the Nomad Foods family and is looking forward to the challenge of delivering their business objectives. The acquisition of Fortenova expands our geographic footprint into a number of new Central and Eastern European markets, many with markets leading share positions.

When we announced the acquisition earlier this year, we expected the business to generate approximately EUR 53 million of adjusted EBITDA. The latest plan is for this business to slightly overdeliver the spend in 2021 with revenue expected to grow mid-single digits. We have several work streams underway to ensure a timely and successful integration.

Consistent with our M&A playbook, we plan to increase the level of advising spend and providing the full suite of capabilities that are fueled our base business.

From a financial perspective, Fortenova is expected to be high single-digit accretive to adjusted EPS in 2022 with a mid-single-digit organic revenue growth profile in the path to EBITDA margin exceeding 20%. We are thrilled to welcome the 3,000 new employees to Nomad Foods and look forward to updating you on progress in the coming months.

It has been a year since we hosted our first ever Investor Day last November. We held this event to provide our investors with a more detailed perspective into our business and our leadership team. We also introduced 2025 financial goals at that event, notably our goal of EUR 2.30 of adjusted EPS, which represents a CAGR of over 10%.

With 2021 nearly complete and the Fortenova acquisition now closed, I am pleased to say, 1 year later, that we remain on pace to achieve our objective that we laid out by 2025, if not sooner. I will now hand the call over to Samy to review our financial results and guidance in more detail.

Samy?.

Thank you, Stefan, and thank you all for your participation on the call today. Turning to Slide 7. I will provide more detail on our key third quarter operating metrics, beginning with revenues, which increased 4% to EUR 599 million.

Revenue growth was driven by 3.3 percentage points from the acquisition of Findus Switzerland, 2 percentage points from favorable FX translation and a slight decline in organic revenues as we anniversaried elevated consumption. Organic revenues declined 1.4% versus 2020, but were up mid-single digits versus 2019.

Frozen food category demand continued to normalize during the third quarter, reflecting increased consumer mobility and a steady return to the out-of-home eating. Against this backdrop, we achieved a market share expansion in our branded retail business, which included strong year-on-year revenue growth from Green Cuisine.

Our nonbranded business increased 15% as food service continued to recover from [Indiscernible] year ago levels. Gross margins were 28% during the quarter reflecting a 240 basis point decline versus the prior year.

This comprised of 200 basis points from higher raw material costs and 40 basis points of dilution from the inclusion of Findus Switzerland whose initial gross margins are below the company average.

Gross margins were effectively flat through the first 9 months of the year, reflecting strong procurement execution and raw material deflation during the first 6 months of the year. We are currently in the middle of our 2022 planning process and like others, expect a higher level of inflation next year.

Our goal will be to mitigate inflation through all levers available. Our business is in good health. Our brands have market-leading positions, and we have strong revenue growth management capabilities that will enable us to navigate the current environment. Moving down to the rest of the P&L.

Adjusted operating expenses declined 14% year-over-year, reflecting a comparable level of A&P spend versus the prior year and a decline in indirect costs. Adjusted EBITDA increased 4% to EUR 123 million, and adjusted EPS increased 17% to EUR 0.35 for the quarter. These metrics once again represent record performance and growth on growth.

Turning to cash flow on Slide 8. We generated nearly EUR 100 million of adjusted free cash flow through the first 9 months of the year, equating to 45% cash conversion. As you know, third quarter represents a seasonal low in our working capital and cash conversion cycles.

We continue to expect significant improvement across both metrics by the end of the year. As we shared with you last quarter, we have a number of factors, notably a catch-up of inventory as a result of COVID and higher CapEx this year that will limit our ability to achieve our long-term target of 100% adjusted free cash flow this year.

With that said, we are expecting a notable improvement in our conversion rate in Q4 and remain committed to this target over the long term. With that, let's turn to Slide 9 to review our 2021 guidance which is based on foreign exchange rates as of November 2, 2021.

We are reiterating our guidance for 2021 adjusted EPS of EUR 1.50 to EUR 1.55 per share which translates to growth in the 11% to 15% percentage range and has us on a glide path to achieving our longer-term financial objectives. Our guidance now includes a seasonal operating loss from Fortenova during the fourth quarter.

As a reminder, we expect this acquisition to be high single-digit accretive in 2022. Had we owned for Fortenova at the start of this year, our adjusted EPS would have been over $2 on a combined and annual basis.

Our 2021 guidance assumes a modest decline in organic revenues for the year with the expectation that we will continue to achieve market share expansion. That concludes our remarks. I will now turn the session over to Q&A. Thank you. Operator, back to you..

[Operator Instructions] Our first question will come from Andrew Lazar from Barclays. Andrew, please feel free to unmute yourself..

I guess, first off, a few weeks ago when you updated investors on your organic growth expectations for the year, you mentioned normalizing category growth rates in key markets in Europe that we're reopening. You talked a bit about that again today.

I guess I'd like to get your thoughts on how this thought process squares with your belief and really that of most other packaged food companies at this stage, that some of these new households gained during the past 2 years could well be sticky longer term with all the new habits and hybrid work sort of arrangements and things of that nature? And then I've just got a follow-up..

Well, Andrew, our thought process hasn't really changed. I think to your point, I think we see that it's a very volatile environment, but people mobility is increasing, restaurants are open. People are returning them back to work. But as you can see, definitely not 5 days a week. So that piece is coming to fruition.

But at the same time, we can see that the level of sales remains very robust against obviously tough comps. And when you compare with the pre-COVID we are in a very good shape. And this also -- and that's important to highlight this before the impact on inflation, which is really going to come in 2022. So hasn't changed.

The only thing that has really changed, but definitely that should somehow have the sales as well as the higher level of inflation..

And that leads into my next question, which is, obviously, you had far less inflation this year than many of your peers in the U.S. and therefore, you did not have to lean in as heavily on the pricing lever. And as you talked about, it would seem inflation, it could be a bigger headwind in '22.

So I'm trying to think how we think about the opportunity for pricing, which in Europe, I realize there are more limited windows, I guess, in terms of time frames to take it.

And if successful, would the timing be such that the impact of pricing might not kick in until more fully until maybe after 1Q of next year? Or what's -- how does the time frame typically work in Europe in terms of getting agreement on pricing with key customers and then when it can sort of be effective on the shelf?.

Well, it's an interesting question, Andrew, because it's -- as you know, Europe is a constellation of many different countries. So it's very much a staggered process. But definitely, we're already starting. So I think we have more visibility, experience this in that, I mean, during our next release for Q4.

But we're really in the middle of these conversations. Some are well advanced, some are less well advanced.

But overall, that's -- I think we always have -- I think we've executed well in terms of pricing in the past with -- I think we've developed a very strong revenue, let's say, revenue management muscles, and we're going to use this muscle right now, actually. So that's -- we are very determined..

Our next question will come from Robert Moskow from Crédit Suisse. Robert, feel free to unmute yourself..

I guess 2 follow-ups. What level of cost inflation do you expect to experience within your business in 2022? I mean is it like high single digit? Is it double digit? It sounds like it could be quite significant. And then also, can you give a little bit more on Fortenova, like what you've seen so far as you've gotten within the 4 walls.

You said that sales are tracking a little bit ahead of expectations. Can you talk about the consumer environment there and maybe even some due diligence you did on inventory in the trade, sometimes businesses that are acquired might load inventory before transition.

Did you make sure that, that didn't happen?.

Robert, I'm going to take the first one and Stefan is going to go on to Fortenova. On the inflation side, I would say. You've seen that in 2021, we [indiscernible] expense in the low single-digit inflation level. And we've been communicating about that, and that's frankly what we've been navigating through the year.

And with a gradual [indiscernible] step up, I mean, towards the end of the year, we expect it actually in 2022 to be higher. And we will give you more detail at that time, we're going to really give you more color on 2022. But I would say higher but not as high as what you have seen from other U.S. companies. We have a profile that's a bit different.

Energy or logistics or supply issues are quite similar across the board, but our brand portfolio is quite different versus other businesses. So net of the -- to your question specifically, I would say higher, but certainly not as high as what you have seen from others..

And to your question, your double question about Fortenova [indiscernible], I would say we are 1 month in the company. So we spend a lot of time. We have a very well structural integration team working together with the team out there. So far, it's really doing well. I think the energy level is very high.

They're very pleased to be really part of a pure-play. Frozen food is the thing as opposed to a conglomerate concept. So that's very important. And, yes, they're trading well. So your question, which is basically, did they -- where they're loading, let's put it that way.

That was the [indiscernible] -- that's what the question -- well, actually, it doesn't matter too much one way or another. What we see right now is anyway the dynamics remain remains good, which is good news. And second, anyway, that kind of behavior would have been captured in the working capital adjustment, no matter what.

So I think that's been taken care of..

What do you mean by working capital adjustments?.

Well, let's say, if you are at some stage, you definitely you are -- for example, you are increasing your level of inventory or the other way around, you're making sure that you're going to have a normal level of working capital across the board. There is no hiccup just before the deal, before closing.

And so that's the kind of formula that you think that you're using, which is fine. And then we haven't seen anything significant one way or another..

That's what I meant. Okay. So nothing significant….

Robert, our consumers are doing fine, I think, at this stage. What we've seen is we're obviously learning ice cream, which is a great category, by the way. So doing fine. I think we've seen already a beginning of an improvement this year during Q3, during the summer season, with tourists coming back, which is great.

But I think that they should be more to next year. And in terms of savory frozen, overall, it's a very, very robust business. You know that we're very pleased with our overall market share within Nomad being more in the region, let's say, of 20%, 20% plus in Western Europe. Here, you're talking about 50%.

So it's -- so these brands are -- if we believe that the old brands like Iglo, Findus, Birds Eye, [Iconic], I can tell you, in these countries, Ledo, Frikom are fantastic brands. So overall, it's a good dynamic..

So the consumer there is getting back to normal mobility, but you're not seeing a negative impact on the category like you are in the U.K.

[Indiscernible] frozen category?.

Again, don't forget that you have a combination of on-trade and off-trade, so -- which is much more pronounced than the rest of our business. So let's say, on-trade, which suffered a lot of out-of-home, which suffered a lot is coming back.

And definitely, there is a bit of a decline in terms of -- but very much in line with the rest of the business in off-trade, in retail. So now overall, it's very much in line, nothing significantly different compared to the rest of the business.

With one significant difference though, there is more on-trade, which is good for us, but basically, it was tough during COVID and now it's coming back up..

[Operator Instructions].

Taposh, apparently no other questions?.

Shannon, are there any more questions in the queue?.

It looks like not at this time..

So we had a lot of answers to all the questions, but fine..

All right. Well, that concludes our question-and-answer session. I will now turn the call back to Nomad Foods CEO, Stefan Descheemaeker, for concluding remarks..

Thank you, Shannon, and thank you for your participation on our third quarter 2021 earnings call. We are navigating through a volatile macro backdrop by delivering our near-term financial objectives and investing in the long-term health of our business. We are on pace to achieve another year of double-digit adjusted EPS growth in 2021.

And I'm excited to integrate the recently acquired Fortenova transaction which we expect to be high single-digit accretive next year.

In summary, we remain on the right path to achieving, if not exceeding, the 2025 financial goals that we set at last year's Investor Day and look forward to updating you on our progress when we next report our fourth quarter results in 2022..