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Edited Transcript of NOMD earnings conference call or presentation 8-Aug-19 12:30pm GMT

Q2 2019 Nomad Foods Ltd Earnings Call

ROAD TOWN Aug 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Nomad Foods Ltd earnings conference call or presentation Thursday, August 8, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Samy Zekhout

Nomad Foods Limited - CFO & Director

* Stéfan Descheemaeker

Nomad Foods Limited - CEO & Director

* Taposh Bari

Nomad Foods Limited - Head of IR

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Conference Call Participants

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* Cornell R. Burnette

Citigroup Inc, Research Division - VP and Analyst

* Donald Delray McLee

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Jacob Samuel Nivasch

Crédit Suisse AG, Research Division - Research Analyst

* John Joseph Baumgartner

Wells Fargo Securities, LLC, Research Division - VP and Senior Analyst

* Jonathan E. Tanwanteng

CJS Securities, Inc. - MD

* Steven A. Strycula

UBS Investment Bank, Research Division - Director and Equity Research Analyst

* William Bates Chappell

SunTrust Robinson Humphrey, Inc., Research Division - MD

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Presentation

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Operator [1]

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

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Taposh Bari, Nomad Foods Limited - Head of IR [2]

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Great. Thanks, Shannon, and thank you all for joining us to review our second quarter 2019 earnings results. With me on the call today are Chief Executive Officer, Stéfan Descheemaeker; and Chief Financial Officer, Samy Zekhout.

Before beginning, 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 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 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 can find the IFRS to non-IFRS reconciliations within our earnings release and in the appendices at the end of the slide presentation, which is 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 and share-based payment and related expenses as well as noncash FX gains or losses. And all comments from hereon will refer to those adjusted figures.

Finally, users should be aware that 2019 figures have been presented in accordance with IFRS 16, the new standard for lease accounting. 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 Stéfan.

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Stéfan Descheemaeker, Nomad Foods Limited - CEO & Director [3]

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Thank you, Taposh, and thank you all for joining us on the call today.

Earlier today, we reported second quarter 2019 earnings results and reiterated our full year guidance.

Highlights from the second quarter include organic revenue growth of 3.5% driven by 4% growth from price, offset by a 0.5% decline in volume and mix; adjusted gross margin of 29.8%, reflecting a 70 basis point decline in the base business and 90 basis point decline due to the inclusion of acquisitions; adjusted EBITDA of EUR 98 million, representing a growth of 10%; and adjusted EPS of EUR 0.27 per share.

We're pleased with our performance during the second quarter, which represents the 10th consecutive quarter of organic revenue growth for our company. This trajectory of sustained growth has been fueled by the investments we've been making in our brands, our people and our capabilities while also strengthening the long-term potential of our portfolio.

Growth during the second quarter was again led by our branded business which grew 4.5%; within our brands, portfolio or core, also known as Must Win Battles, grew 7%. We achieved growth in nearly every major growth categories including fish fingers, coated fish, (inaudible) fish, famous in local Must Win Battles.

We experienced particularly strong growth within our vegetable portfolio which grew 6% during the quarter. This growth was driven by strong execution of spinach products combined with a favorably responsive prepared vegetable products such as our recently launched Veggie Power innovation.

Geography performance during the second quarter was once again relatively broad-based with most of the countries achieving growth. Growth was particularly strong in Germany, Austria and The Netherlands with each achieving organic revenue growth above 10%.

U.K., our largest country, delivered organic growth net 5%, with strength in fish fingers, poultry, vegetables and private-label pizza. U.K. also benefited from the launch of Green Cuisine, our new plant protein range, which began shipping in late March. Within the U.K., we rebooted the Goodfella's Pizza brand during the second quarter by launching a new advertising campaign alongside enhanced product packaging features.

As you may have seen in the interim report, we experienced some temporary generative declines in branded pizza business early in Q2 based on our decision to underpromote and to build capacity ahead of the brand [reviews]. We're happy to see our strategy play out as expected, with the branded pizza business returning to growth for the month of June.

Staying on the topic of pizza, we recently began to test the Goodfella's model outside of the U.K. and Ireland. We are currently piloting the concept in Portugal under the Iglo brand, which actually sold pizza many years ago. We look forward to seeing the results of these tests later this year.

That was the summary of our second quarter highlights. So let's now turn our attention to our outlook, both near and long term. Through the quality of our core, we're developing a strong foundation from which we can build on for years to come. Notwithstanding our performance to date, we continue to see significant headroom for growth within our core fish and vegetable category. Our core categories are margin-accretive, are market-leading positioning and opportunity for even greater penetration.

The food industry is undergoing a significant product shift as consumers seek out brands with a focus on superior quality and plenty of taste but also on nutrition and on sustainability. We focused here to have a portfolio which plays directly into these themes. Our power brands, Findus, Iglo and Birds Eye, are known for providing families with high-quality and great-tasting meal solutions which are convenient, nutritious and accessible. These brands have incredible awareness built over decades with the potential to be even larger in size.

As we prepare ourself for the future, we are increasingly focused on evolving our core, which includes fish fingers, coated fish, peas and spinach as well as developing new platforms which play into the growing flexitarian movement. To do this, we will look to leverage the credibility of our brands and the pan-European scale of operations.

Turning to Slide 5. Plant protein is one of many exciting innovations in our pipeline. We're developing a differentiated range of meat-free products through our Green Cuisine sub-brand using pea protein and leveraging of brand services in this protein-rich crop. Green Cuisine was launched in the U.K. early this year and is offering burgers, sausages and meatballs. Early feedback has been positive with excitement building further into all-new Whoops, I'm a Bit Veggie campaign, which began in late July and will run through early October.

Another innovation success story is Veggie Power, a modern blend of vegetables boosted with healthy grain. This range launched in Portugal last year, has since been expanded to a total of 5 countries across the portfolio, with each market having its own local variation. Results have been very encouraging thus far, reinforcing the potential that we have in vegetable-style dishes beyond peas and spinach.

Green Cuisine and Veggie Power are 2 great examples of our innovation pipeline as well and how we will look to build around our core. They illustrate a number of dimensions that our portfolio has in helping consumers maintain a more sustainable and nutritious diet while still offering superior quality and taste. Green Cuisine provides families with a meat-free product, which is healthier than most of our competitors', while Veggie Power provides an innovative way of increasing vegetable consumption.

In summary, we're pleased with our second quarter results, which have us on track to deliver a third year of growth in line with our long-term algorithm. Our portfolio is well aligned with the future of food, and we look forward to playing a pivotal role in driving growth in both our business and our category. This will be through a combination of organic growth, we are demonstrating a sustainable model as well. M&A will also play an important role in due time. We have a strong pan-European infrastructure, integration capabilities and capital to pursue acquisitions which will be accretive to both earnings and shareholder value.

With that, I will hand the call over to Samy to discuss the financials and guidance in more detail. Samy?

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Samy Zekhout, Nomad Foods Limited - CFO & Director [4]

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Thank you, Stéfan, and thank you all for your participation on the call today.

Turning to Slide 6. I will provide more detail on our key second quarter operating metrics beginning with revenues, which increased 10% to EUR 538 million, driven by 3.5% organic revenue growth and 7 percentage points from acquisitions.

Adjusted gross margin was 29.8%, declining 170 basis points year-on-year. Base business gross margin declined 70 basis points as improvement in volume mix and price and promotions were more than offset by COGS inflation. Acquisition mix negatively impacted gross margin by 90 basis points, and FX, a further 10 basis points. These results were largely in line with our guidance and reflect the shift of Easter promotions from Q1 into Q2 as well as a more normal level of promotion this year versus the prior year.

Moving down to the rest of the P&L. Adjusted operating expenses increased 4% year-over-year primarily due to the inclusion of acquisitions. As a percentage of revenues, adjusted operating expenses improved to 14.7% from 15.5% in the prior year, reflecting acquisition synergies, expense discipline and phasing. Second quarter adjusted operating expense were slightly below our expectations due to phasing. Our spending plans for the year remain unchanged. Within operating expenses, A&P increased 1% and indirect expenses increased 5%.

Adjusted EBITDA was EUR 98 million and, as expected, included a EUR 4 million benefit related to IFRS 16, the new standard on lease accounting effective this year. Excluding this benefit, adjusted EBITDA grew 6% versus the prior year.

Adjusted EPS was EUR 0.27 for the quarter, declining 4%, reflecting the offering of 20 million shares in March 2019. IFRS 16 did not have a material impact on EPS during the second quarter.

Turning to cash flow on Slide 7. We generated EUR 87 million adjusted free cash flow during the first half of the year as compared to EUR 102 million generated in the same period last year. Factors contributing to adjusted free cash flow performance include: adjusted EBITDA of EUR 220 million, a 15% year-on-year increase; a working capital outflow of EUR 68 million; CapEx and cash taxes were both EUR 17 million; and cash and interest -- cash interest and other are EUR 31 million due primarily to the reallocation of lease payments from operating cash flow to financing cash flow as a result of IFRS 16.

We achieved free cash flow conversion of 71% through the first 6 months of the year, below our long-term annual target of 100%. This performance is partly a function of seasonality given the time of the year. With that said, we know we can do better on cash generation and other series of actions in place to drive stronger cash performance in the back half. However, given the seasonal nature of our cash flows, we do expect working capital to again represent a cash outflow in Q3 as is typically the case due to the timing of the harvest.

We ended the second quarter with leverage in the high 2s, which provides us with adequate capacity to pursue our M&A agenda. As Stéfan mentioned, we remain active on the M&A front and look forward to updating you in due course.

With that, let's turn to Slide 8 to review our 2019 guidance which is based on foreign exchange rates as of August 6, 2019. For the full year 2019, we are reiterating adjusted EBITDA guidance of approximately EUR 420 million to EUR 430 million and adjusted EPS guidance of EUR 1.18 to EUR 1.22. Full year guidance continues to assume organic revenue growth at the low single-digit percentage rates. Based on current exchange rates, we expect FX translation to represent approximately 70 basis points of drag on reported revenue in the third quarter and 60 basis points for the full year. We expect adjusted EBITDA growth in both Q3 and Q4 with relatively comparable year-on-year growth rate in each quarter.

That concludes our remarks. I will now turn the session over to Q&A. Thank you. Operator, back to you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we'll take our first question from Steve Strycula of UBS.

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Steven A. Strycula, UBS Investment Bank, Research Division - Director and Equity Research Analyst [2]

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So a quick question on revenue and I have a quick margin follow-up question. So Stéfan, you mentioned that the core is doing quite strong, up 7% in organic sales. Just was curious as to what are some happenings, some other pockets of the portfolio right now with -- that have further room for improvement, whether it's pizza or some of what you would call that are not Must Win Battles.

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Stéfan Descheemaeker, Nomad Foods Limited - CEO & Director [3]

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Good point, Steve. I think -- let me again reiterate (inaudible) starting point for us. Obviously, Must Win Battle is critically for us. And you may remember that all-in together, even including the decline of peas because we did not have enough peas due to the bad harvest last year, we delivered plus 7% with Must Win Battles. So a total of 3.5. 3 or 4 it means obviously some other things are doing less well. But again, part of that is a deliberate choice, which is let's focus on obviously our key categories where we have leading positions, where obviously our gross margin is the highest. And that's exactly what Must Win Battles are.

So orders obviously on the nonbranded side is one thing. Obviously, food service is another. But even within the brand side, Steve, we also have made some deliberate choices. For example, in Norway, we have a very low gross margin product like wet fish, and we just have decided that it was time to delist it because it was just not good. So it had an impact in terms of sales, but quite frankly, it's really something that we are -- it's a deliberate choice that we are making.

Does it mean that we aren't perfect and that there are other things that we can do better? Absolutely, you're right. So in terms of secondary battles, there are some areas of growth and pockets of improvement in food service where we think we can do a better job. And that specifically is going to be a focus for the coming quarters without losing, and I will only repeat this 10 times, without losing our focus behind the Must Win Battles.

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Steven A. Strycula, UBS Investment Bank, Research Division - Director and Equity Research Analyst [4]

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Okay. Perfect. And then a question on the margin leverage. As we think about the longer-term goal of getting to a 20% EBITDA margin rate, can you help us understand where we are in the journey of, call it, raising the profitability of like a legacy Findus business, particularly in the Nordic region which I think has lagged? And then some of the opportunities of where are we in the process of kind of improving the profitability run rate of Goodfella's and Aunt Bessie's, knowing that 2019 was more of a reinvestment year for both of those brands. That would be helpful.

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Stéfan Descheemaeker, Nomad Foods Limited - CEO & Director [5]

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Let me start, and obviously, Samy, please complement what -- if I'm missing something. I'm sure that I will miss something. But conceptually first, I mean, you know that (inaudible) is really based on a series of, let's say, specific tools. The Must Win Battle is one. It's really part of our DNA. And obviously, the more you're tweaking the size and the proportion of Must Win Battles, by definition of your mix, you tend to increase naturally your gross margin. That's one thing.

The second piece, and it's been very -- it's been vital for us for the last -- the first few years, and it's still very important, is network management plays a significant role. And you remember that this year, we are digesting so far an unprecedented level of price increase. So I think we've been quite bold. Obviously, we were not afraid of moving some volumes here and there. Obviously, it has to do with pricing activity. Overall, we're pleased with that.

The third piece is productivity. We still believe that we have more to do in terms of our supply chain, improving relationship between in-sourcing and outsourcing, that's one thing, really working hard and initiating a program this year of how to overall base of standards. Of course, the first in plants we have right now, creating the standards, making sure that little by little, every plant has reached a standard base on the best-in-class [CPIs] we have. So a lot of synergies. And obviously, we also have the synergies coming from Aunt Bessie's and Goodfella's.

I'll go back to your question, more specific question again about Goodfella's. I think it's been a very interesting journey, Steve. It's an interesting journey because it's -- let's say, let's do it that way, 50% brand, 50% private label. So you know the journey with brands. And we've just applied our toolkit, which is we're taking the time just making sure that we have the right packaging, the right policy, the increasing policy, we have the right copy, the right advertising and then the right price, by the way, to increase price as well. So that's one thing, and that's brand. And we are quite pleased with the early -- it's early results, obviously. So it's only 1 month, but too early to say. But at least it feels good, and we report later obviously in the coming quarters.

The second piece, which is private label, that's also interesting because what we discovered, we have a whole lot of things, very low margin and then very decent margins. And I think it's an interesting situation because then you can afford to stop some very low margin because you know that your brand, if everything goes right, is going to take in the capacity. So that's what we're doing with Goodfella's. And then little by little, we're going to increase the overall gross margin.

So back to your question about when are we going to reach 50%, as you know, we haven't come up with one -- we haven't committed to a deadline. We know that, obviously, with everything being equal, like-for-like, we're increasing it. Obviously, we never had the mercy of a big spike in terms of inflation. It's something we did this year. We would not have done it if we would not have come up with a price increase this year and then you -- I mean we would have done very much lower. So we're making progress.

So that's a journey more than anything else. Sorry, I went very long.

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Steven A. Strycula, UBS Investment Bank, Research Division - Director and Equity Research Analyst [6]

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No, no, no, that's very helpful.

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Samy Zekhout, Nomad Foods Limited - CFO & Director [7]

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I think the only point I would add is on top of what Stéfan said is that as you recall, we had made the statement that we will increase as well our innovation phase and the share of innovation in our total sales. And as you know, we clearly pride ourselves to bring to the market some higher-margin innovation. That is as well part of the help amongst all of the things Stéfan has mentioned as well.

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Operator [8]

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

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John Joseph Baumgartner, Wells Fargo Securities, LLC, Research Division - VP and Senior Analyst [9]

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Stéfan, obviously, some moving parts with the Easter shift, but even looking at numbers on a first half basis, the volume elasticity was really fairly resilient given the price increases. So I'd just like to get a sense as to your confidence in that elasticity, what you're learning about the pricing power of the portfolio. And then maybe thinking about any cross-elasticities, what are you seeing from competing categories? Is pricing fairly rational there as well?

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Stéfan Descheemaeker, Nomad Foods Limited - CEO & Director [10]

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So let me start with a global statement. I think overall, I think the pricing elasticity is in line with what we had expected. Obviously, by definition, with some variations country by country, because to your point, at the end of the day, most of the time, the competition is becoming rational. It is always taking a bit of time to adjust. So we've seen and sometimes these are doing better than expected. Some others, a bit -- it's a bit -- takes us a bit more time. But overall, we're pleased with the pricing elasticity, and we're pleased with the quality of the pricing power of our brand.

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John Joseph Baumgartner, Wells Fargo Securities, LLC, Research Division - VP and Senior Analyst [11]

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Okay. And then just for Samy, anything worth noting in terms of expectations for pea cost inflation for next year? Any comments on the harvest outcome this year? And then on fish, are there any views at this point in terms of the catch rates? And any prospects for moderation of the inflation in fish?

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Samy Zekhout, Nomad Foods Limited - CFO & Director [12]

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Yes. On the harvest, John, clearly, the situation is definitely better than last year. Clearly, what -- the summer has started this year as we've seen summer heatwave but not in the proportion of last year. And the early read that we are seeing on the harvest is quite encouraging so far. We're going to know by the end of August, as you know, because probably on peas, that's really where we have the highest sensitivity given the fact that it's a 1-shot. But I would say so far, so good. We should have yields that are better than last year, definitely.

On the fish, what we are seeing is still some increase on inflation coming up but definitely not in the same magnitude of what we have seen this year. As I say, it's going to be probably more modest. That's our expectation at this stage.

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Operator [13]

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And our next question will come from Robert Moskow of Crédit Suisse.

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Jacob Samuel Nivasch, Crédit Suisse AG, Research Division - Research Analyst [14]

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This is Jake Nivasch for Rob. Just a couple of quick questions. So for EBITDA guidance for the back half, is that -- it looks like there's going to be some like modest growth in the back half, if at all. So we're just wondering, is this largely because of the phasing of your ad spending or just slower growth altogether? Just any color there would be helpful. And then I have a follow-up.

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Samy Zekhout, Nomad Foods Limited - CFO & Director [15]

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Yes. We -- as you know, we're maintaining the guidance between EUR 420 million and EUR 430 million. And what we can tell you at this stage, when you're (inaudible) factoring the actuals that we have at the end of June and the prospect on the basis of the full year outlook, we're expecting in each quarter roughly between 8% and 14% per quarter of growth. So the spending shift is creating that effect.

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Jacob Samuel Nivasch, Crédit Suisse AG, Research Division - Research Analyst [16]

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Got it. And then -- so the Garden Cuisine (sic) [Green Cuisine] brand, I think you guys might have mentioned this, but I missed it, what is -- I guess what's the strategy for scaling this up? Is it country by country? Or is it more of a narrow expansion focusing on just like a couple of countries?

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Stéfan Descheemaeker, Nomad Foods Limited - CEO & Director [17]

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I will say we've just started with U.K. The objective is obviously not to limit ourselves to these SKUs. So it's definitely a starting point. I think it's going to be much bigger because it's really -- I mean it's very much in line with the flexitarian trend that we can see. We also believe that we have an amazing, let's say, number of SKUs of products that can work in that category today, so even without further expanding. So most will come in the next months (inaudible) country by country. It's not necessarily going to be Green Cuisine in each country because you know that we also have this concept of global local. The products might be a bit different. Sometimes we'll have just to -- we'll have the same chassis that you have to adapt to the local taste definitely. And that's something that -- we believe a big part of our success is to be able to deal with this global local thing.

And I think very, very, very important, and that's a factor of difference compared to many other, let's say, plant protein products, we are very much focused on healthy foods. So it has to be tasty, definitely. It is obviously very much in line with the CSR concept. But probably -- I mean the differentiating factor with all products is the whole healthy that is in terms of saturated fat and in terms of calories, by the way. Calories is also important.

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Operator [18]

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And our next question will come from Donald McLee of Berenberg.

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Donald Delray McLee, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [19]

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Two questions. The first is on acquisitions. They continue to be a significant driver of top line growth, but could you provide any more color on what's happening with your organic EBITDA, excluding Aunt Bessie's and Goodfella's? It seems like that number might be flat year-over-year. Is that correct?

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Stéfan Descheemaeker, Nomad Foods Limited - CEO & Director [20]

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So can you can repeat the question? I'm not sure that I (inaudible).

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Donald Delray McLee, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [21]

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Sure. Could you just give us -- yes, if you could give us any color on organic EBITDA, excluding Aunt Bessie's and Goodfella's, and how that number has grown or moved year-over-year, it'd be helpful.

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Stéfan Descheemaeker, Nomad Foods Limited - CEO & Director [22]

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Sorry. Okay. I heard something else. Okay. Good. So the point is we don't disclose EBITDA between base and the acquisition, actually.

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Donald Delray McLee, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [23]

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Okay. Then another question just on...

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Stéfan Descheemaeker, Nomad Foods Limited - CEO & Director [24]

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But the point -- just the point, I mean, maybe just to give some additional point, the fundamental -- I mean the message we want to give you is that the fundamentals on the base are strong, and we are clearly rising our acquisition in line with our expectation as well. That's the thing that for your modeling, I think that can be helpful, but we don't really break down the 2.

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Donald Delray McLee, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [25]

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Okay. That's fine. I can also follow up after the call.

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Stéfan Descheemaeker, Nomad Foods Limited - CEO & Director [26]

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(foreign language)

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Donald Delray McLee, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [27]

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All right. And then the second question is on cash conversion. Could you provide more color on -- there's a line item in your cash flow statement, cash paid related to the factor receivables. Maybe if could you provide any color on the amount of that actual facility and how it might impact your cash conversion?

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Stéfan Descheemaeker, Nomad Foods Limited - CEO & Director [28]

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You're talking about what's exactly within the cash conversion?

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Donald Delray McLee, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [29]

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Yes. There's a EUR 3.1 million auto-payment for cash paid related to factor receivables. I think that's the first time that line has shown up in your statements. If you can give an idea of what's actually happening to drive that cash outflow and then how that impacts your cash conversion.

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Samy Zekhout, Nomad Foods Limited - CFO & Director [30]

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Yes. We have used factoring based on, frankly, our needs and the market situation. And actually, it's not the first time that (inaudible) historically as well. And in December, we had about roughly 50 million of factoring. And at this stage, the number, exact number is about 33. So gradually phasing in or phasing out depending on the market condition and our needs as well.

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Operator [31]

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(Operator Instructions) And we'll take our next question from Cornell Burnette of Citi Research.

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Cornell R. Burnette, Citigroup Inc, Research Division - VP and Analyst [32]

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Congratulations on the quarter. Just wanted to make myself clear about some lines with advertising and promotion. I know that the original -- since your guidance called for flattish EBITDA, but yet EBITDA improved by about 10%, so just wondering, how much of that was due to maybe a shift in advertising and promotion? I know there was about EUR 5 million that was supposed to shift out of 1Q primarily into 2Q, but it seems a lot of that's moved back later in the year. So wondering if that's really the main driver of the upside in EBITDA in the quarter. And if not, kind of what prevents you from taking up the EBITDA range for the full year if it's really beating numbers as we speak?

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Samy Zekhout, Nomad Foods Limited - CFO & Director [33]

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As we have mentioned in the communication, (inaudible) guidance. And what we have seen shift is fully driven by the business. We are trying to build our plans on a quarterly basis, and sometimes we do see shift, and for instance, on the Green Cuisine (inaudible) the point at which advertising makes sense that we have to achieve a certain set of distribution before we start our advertising. And that point of distribution is effectively going to be achieved more in Q3 than it was in Q2. So it made no sense to frankly advertise Green Cuisine in Q2, and so we decided to shift there. So this is not a cut. I want to be very clear, this is just a shift on the A&P side. And we manage our plan over the year as well on the indirect side. So there are moments where technical projects are shifting, some resource allocation are shifting as well. So at that stage, we are fully [returning] our guidance, and we are planning effective to deliver between EUR 420 million and EUR 430 million for the year.

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Cornell R. Burnette, Citigroup Inc, Research Division - VP and Analyst [34]

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Okay. Very good. And then adjusting, I guess, the Easter shift, it looks like volumes are running at about a 2% decline, which is really good in light of the 4 points of pricing that you've been getting. But just wondering, digger deeper into those declines, kind of are they broadly spread maybe across your categories? Or are they more pronounced in a category like peas where you're dealing with some pea supply issues? And then once these supply issues are out of the way, perhaps in Q4, how do you see that category progressing for you?

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Samy Zekhout, Nomad Foods Limited - CFO & Director [35]

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On the volume adjustment, we've seen effective return, which is effectively planned. I mean what you see on the volume, which is important, is the sensitivity is not just if you want a straight outcome of the pricing, but the PPA has an effect that went to the price architecture in the short term. I mean this at the back of 12 versus the back of 14. You have -- because people buy (inaudible) the impacts, then it does have an impact. And over time, people readjust their consumption based on what they consume, if you want. So there's a bit of time always on that one. So that element of volume has an impact, I mean, out there. What we have seen is effectively that, as Stéfan was saying, the elasticity has responded in line with expectation, proving the fact that our brands are strong and frankly can handle pricing.

And the other piece is the market condition were clearly, let's say, set to confirm the fact that all of the pricing was justified by inflation, to be fair, very well differentiated because not only of the -- our competitor in the market had moved there because of the raw material inflation that we have seen overall.

And last but not least on the Easter impact, I just want to remind, I mean, we were talking about roughly 1.5% shift from one quarter to the other. That was the prime impact that we have seen between both quarters.

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Cornell R. Burnette, Citigroup Inc, Research Division - VP and Analyst [36]

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Okay. And then the last one for me is just if you can provide us with an update on how you're planning to position the business heading into October 31 Brexit deadline draws nearer. Just wondering what contingencies you have in place in case that there's a hard Brexit scenario.

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Stéfan Descheemaeker, Nomad Foods Limited - CEO & Director [37]

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Okay. But to your point, I think we are preparing ourself for a hard Brexit or a no-deal Brexit, whatever the name you want to use. So all in, we're ready for this. We have all the [indiscernible] infrastructure in place, which is absolutely fundamental to limit the disruption in that event, which we believe is likely to happen.

By definition, you know that our guidance assumes business as usual until we decide otherwise. But I think what's important is in the event of a no deal, we have built in 3 mitigation strategies that we will use to offset the P&L impact. One is it comes naturally, which is the U.K. obviously unless the government is offering some import subsidies, which is not insignificant to say the least. That's one thing. For how long? 1 year, maybe more, nobody knows, obviously. Also, what I've learned in this situation that the reality of today is not the reality of tomorrow. Maybe the day after tomorrow, we will see. So that's one thing.

Second, and it covers a lot of different things, is the supply chain reorganization. So it really covers many different things. It can be, for example, moving from a U.K. co-factor to a -- or maybe even the own capacity to a co-factor in another country. By doing so, you've got obviously the tariffs moving from U.K. to export. Or you can imagine, which is turning to become more long term, is some CapEx reorganization that obviously will modify and in the U.K. and the rest of Europe or supply chain.

One other thing, which is also short term, is we definitely have some communication with some of our suppliers in terms of who's going to take in the remaining -- the net impact of the subsidies.

And last but not least, after all these things, is pricing. They will be definitely in U.K., maybe less expensive in Europe. But in the U.K., depending on the category, we have some pricing power. And obviously, it is something that even, let's say, is acknowledged by the trade when they say that there will be price increases. That's a public statement that has been made, and that is going to come from people like us. So that's the whole thing.

So it's something obviously we're taking, as you can imagine, very seriously. And I think what is also important to understand is, and it's for further consideration, but beyond October 31, assuming there is no deal, both parties, Europe and U.K., will have to come back to the negotiation table at some space because, definitely they cannot live long, long, long term with the highest tariff possible that are WTO. So that's not part of our plan. So we're obviously planning for the worst. We need to present how resilient we're going to be today. And definitely, we have all the variables that are ready for this.

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Operator [38]

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And we'll take our next question from Bill Chappell of SunTrust.

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William Bates Chappell, SunTrust Robinson Humphrey, Inc., Research Division - MD [39]

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Could you go back a little bit to Goodfella's and even Aunt Bessie's and just maybe kind of an update on how those are progressing since you bought them and maybe some things you've done to them? I mean you talked a little bit about the reboot on Goodfella's. And so I was kind of understanding, was that always in the plan? Or was there a thought that, really, to get it where you needed to, you needed a full reboot?

And same on just Aunt Bessie's, I know it's more of a product-specific category, but just trying to understand what you can and what you have done with that business.

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Stéfan Descheemaeker, Nomad Foods Limited - CEO & Director [40]

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Well, let me start with the synergy plan. I think it's -- synergies are really very much in line, sometimes even slightly better. Overall, on a stand-alone basis, some are better, some are probably -- at least temporarily a bit less than expected. So in other words, I would say Goodfella's is really doing well, qualitatively doing better. Both are doing well. But I would say Goodfella's is doing even better. I think what we're doing is increasing the quality of the private-label portfolio. And we're increasing the quality and the price, by the way, of our brand ramp-up. And we're really rebuilding the brand, which is a great brand. So that's doing well on top of, obviously, the synergies.

And I'd say Aunt Bessie's is a bit up right now, but it's highly seasonal. And I think we are very -- we overall we're pleased with what we have. You know that we can. Obviously, we have still some distribution, let's say, possibilities that we need to further expand. And let's not forget, obviously, that it's a highly seasonal product and an important part of for Aunt Bessie's at the end of the year. But overall, very pleased.

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William Bates Chappell, SunTrust Robinson Humphrey, Inc., Research Division - MD [41]

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And in terms of the reboot for Goodfella's, just kind of the understanding behind that.

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Stéfan Descheemaeker, Nomad Foods Limited - CEO & Director [42]

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I'd say there's a reboot to -- I mean this takes us back to -- what we said is we took our time, as we did for all of Must Win Battles, by the way, which is, one, let's make sure that we have a product that is superior and obviously is superior to competition. That's one thing. Second is let's make sure that we have a packaging that is really -- I mean that becomes the same kind of message. That's the second piece. The third piece is let's make sure that price-wise and promotion-wise, we have built the right model and in line with what the trade is expecting from us. And all this obviously helped by a very good advertising campaign that I've just started, as I said. So far, so very good. Obviously, it's a bit too early to say because it's a few weeks. But I think the first few weeks are very, very encouraging.

So I think it's very much in line with our playbook, which is reassuring, by the way, because it means that this playbook can really travel not only to the existing portfolio but can travel to other M&A targets in the future. So that's -- so obviously, we're always trying to improve the playbook, but at least the basis right now is working very well.

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William Bates Chappell, SunTrust Robinson Humphrey, Inc., Research Division - MD [43]

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Got it. And last one for me. Maybe too early...

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Stéfan Descheemaeker, Nomad Foods Limited - CEO & Director [44]

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(inaudible) I probably mentioned, by the way, and I mentioned it during the prepared remarks, that Portugal was not part of the business plan. So we bought the business based only on Ireland and the U.K. And we see that, again, too early to say, but at least the early signals from Portugal, I'd say, are encouraging. But again, it's a small pilot, but these guys, they like to do these kind of things, and Iglo as a brand has the right claim with them. And we have the distribution model.

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Operator [45]

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And our next question will come from John Tanwanteng of CJS Securities.

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Jonathan E. Tanwanteng, CJS Securities, Inc. - MD [46]

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I'm not sure if you addressed this yet. I jumped on a little bit late. But can you talk about the impact of a hot summer on your sales and potential supply and the harvest?

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Samy Zekhout, Nomad Foods Limited - CFO & Director [47]

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Yes. Actually, the summer, as I had mentioned, has been better than last year. So far, frankly, we can't comment on the sales per se because, I mean, we're in the middle of the summer, and we look at our plan within -- on a 3-month basis. What I can comment more is on the -- probably on the supply side and on the harvest. And what we are seeing today, that so far, so good. It is definitely better than last year. And the harvest itself has given some encouraging signs. So we'll definitely end up with better yields than last year, provided the weather continue to remain on that basis.

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Jonathan E. Tanwanteng, CJS Securities, Inc. - MD [48]

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Great. And then Stéfan, just an update on what you're seeing in the M&A pipeline and maybe a little bit more on the -- I guess the attractiveness of these very healthy options that consumers are gravitating towards. Are you planning on shifting your focus towards those types of (inaudible)? I know you're doing it organically with the Green Cuisine, but from an acquisition standpoint, are you looking more at those? Or are you still trying to go down the (inaudible) with the frozen food and then your core types of businesses?

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Stéfan Descheemaeker, Nomad Foods Limited - CEO & Director [49]

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It's a very good question. To your point, first, we want to accelerate -- organically, we want to accelerate that part of the business. So plant protein is -- as we said, is a very important point for us. We're even going to reorganize ourselves to be even more dedicated to plant protein. So that is coming, which is -- which I think is fundamental. We're facing competitors that are (inaudible) indicators plant protein and so should we. So that's one thing.

Then back to acquisitions or external growth in terms of supporting good, healthy options. Definitely, when we see the -- our portfolio, 80% of our portfolio is -- from a nutritious standpoint, is labeled or defined as -- 80% is considered as good food, and that's quite unique. And definitely, we -- and by the way, that's something that probably we understand. We're not very good at that. So we need to do a better job internally, externally, everything.

So back to the healthy options. Definitely, in frozen and potentially nonfrozen, if we see some assets that are in line with our criteria in terms of, obviously, strong brand, capacity to be integrated in our distribution, strong moat and, obviously, a good growth potential, definitely something we're going to consider, no doubt about it.

And so back to your M&A questions, we're active, definitely. At the same time, we are very disciplined. And let me repeat it again, I will never commit to a time line and to a deadline in M&A. That's the best way to destroy value.

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Operator [50]

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And we'll take a follow-up question from Donald McLee of Berenberg.

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Donald Delray McLee, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [51]

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Quick follow-up on Ocean Beauty. It's been about 6 months since you announced the distribution agreement in the U.S. Could you talk a bit about the progress you're seeing there with your product over in the U.S.?

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Stéfan Descheemaeker, Nomad Foods Limited - CEO & Director [52]

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Yes. Thanks. It's an interesting question. And you remember last time when we talked about Ocean Beauty, I just mentioned it's an interesting first step, but let's say it's a very first step and it's tiny. I think what I've seen so far is they're in preparing mode, but let's say don't expect something like a big advertising campaign in the U.S. with a lot of money to be invested. So I think we're going to be more granular with Ocean Beauty. We're going to build maybe 1 stronghold and then go to the other and all these things. So it's going to be a long thing and don't expect something spectacular out of this at least in the short term. Long term, that's something else. At least we shall see. It's an interesting development.

And the good news to your point is we have a really, we believe, a world-class base business in Europe. And yes, we will test how it's going to work in the U.S. We believe the product is superior to what is currently existing in the U.S. And we will see whether the consumers would agree with us.

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Operator [53]

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And it does appear we have no further questions at this time. I will turn the conference back over to Stéfan Descheemaeker for any additional or closing remarks.

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Stéfan Descheemaeker, Nomad Foods Limited - CEO & Director [54]

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Thank you, Shannon, and thank you for joining us on the call today to review our second quarter results. We're pleased by the progress that we have made through the first half of the year and continue to see further positive for growth in both the near and long term. Our core portfolio remains a strong driver of growth with contribution from new innovations like Green Cuisine and acquisitions.

With that, thank you for your participation, and I look forward to updating you on our progress where we will next report third quarter results in November.

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Operator [55]

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That does conclude today's teleconference. Thank you all for your participation.