Nomad Foods Limited — FY2018 Form 20-F
Reporting period: Fiscal year ended December 31, 2018; filed February 28, 2019. The filing is an annual report, not a standalone fourth-quarter report, and does not provide clear Q4-only financial results. Financial statements are prepared under IFRS as issued by the IASB and adopted by the EU; amounts below are in euros unless stated otherwise.
Business context
Nomad is a branded frozen-food manufacturer and distributor operating primarily in Western Europe, with brands including Birds Eye, Iglo, Findus, Goodfella’s and Aunt Bessie’s. It reported one operating segment, Frozen. In 2018 it acquired Goodfella’s (April) and Aunt Bessie’s (July), expanding its pizza and UK frozen-food businesses.
Key financial results
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | €2,172.8m | €1,956.6m |
| Gross profit / gross margin | €653.5m / 30.1% | €599.4m / 30.6% |
| Operating profit | €283.1m | €242.9m |
| Profit before tax | €227.1m | €168.5m |
| Profit for the year | €170.5m | €136.5m |
| Basic / diluted EPS | €0.97 / €0.97 | €0.78 / €0.74 |
| Adjusted EBITDA / margin | €376.4m / 17.3% | €328.1m / 16.8% |
| Cash from operating activities | €321.3m | €193.8m |
Revenue grew 11.0%: management attributed 2.6% to organic growth, 9.4% to acquired businesses and a 1.0% reduction to foreign-exchange translation. Adjusted EBITDA is a company-defined, non-IFRS measure; its adjustments included €17.7m of exceptional items, €5.7m of acquisition inventory fair-value adjustments and €23.6m of other add-backs.
Liquidity, debt and balance sheet
- Year-end cash and cash equivalents were €327.6m, including €0.1m restricted. The company reported total liquidity of €390.8m, including €63.2m available under its revolving credit facility.
- Cash used in investing activities was €513.2m, including €465.1m net cash paid to acquire subsidiaries. Cash provided by financing activities was €302.7m.
- Balance-sheet loans and borrowings were €1,764.3m, net of deferred borrowing costs. Contractual principal obligations were €1,794.4m; the company also had €400m of 3.25% senior secured notes due 2024. Term loans mature in May 2024; the €80m revolving facility matures in May 2023. No revolving loans were drawn, although €16.8m was used for letters of credit and guarantees.
- Management said it was compliant with debt covenants and expected cash, operating cash flow and facility access to meet liquidity needs for at least 12 months.
- Total assets were €5,340.8m and total equity €2,059.1m. Goodwill and other intangible assets totaled €3,948.2m. Net employee-benefit obligations were €200.6m.
Changes, outlook and notable items
- Gross margin fell 50 basis points to 30.1%. Management cited acquired-business mix, foreign-exchange-driven input costs and acquisition inventory fair-value uplifts, partly offset by pricing and promotional efficiencies and favorable base-business mix.
- Net finance costs declined to €56.0m from €74.4m, while tax expense increased to €56.6m from €32.0m. The effective tax rate rose to 24.9% from 19%, principally due to jurisdictional tax rates and reduced use of certain tax losses.
- Exceptional items were €17.7m, mainly Findus integration (€10.4m), Goodfella’s and Aunt Bessie’s integration (€8.3m), and factory optimization (€1.6m), partly offset by €3.8m of income from legacy settlements. The two 2018 acquisitions had preliminary purchase-price allocations; acquired businesses contributed €181.0m of revenue and €14.2m of profit before tax from their respective acquisition dates.
- For 2019, management described expected capital spending as focused on factory capacity and maintenance, cost-saving projects, IT, innovation and regulatory compliance; it gave no specific total capex forecast in the provided text.
- IFRS 16 adoption from January 1, 2019 was expected to add approximately €120m of lease liabilities and €84m of right-of-use assets, release a €66.9m Bjuv onerous-lease provision, reduce 2019 profit before tax by about €5m and increase Adjusted EBITDA by about €15m. These are estimates, not reported results.
- Key risks include Brexit uncertainty (27% of FY2018 revenue came from the UK; 94% from the EU), retailer concentration and private-label competition (top ten customers represented 42% of sales), commodity and foreign-exchange exposure, acquisition integration, debt and interest-rate exposure, and food safety and supply-chain disruption. Tax audits and assessments were ongoing in several jurisdictions; the company reported no material legal proceedings.
- The company reported no plans to pay ordinary-share cash dividends. It issued 171,092 ordinary shares in January 2019 for the 2018 Founder Preferred Share annual dividend. The auditor gave unqualified opinions on the financial statements and internal controls; the two businesses acquired in 2018 were excluded from the year-end internal-control assessment.
Investor verification points
- Separate acquired-business contributions from underlying organic growth and assess the sustainability of the 2.6% organic increase.
- Reconcile reported operating cash flow with the €51m increase in receivables factoring and assess the resulting cash-flow quality.
- Review gross debt, scheduled repayments, covenant headroom, variable-rate exposure and the effects of currency hedges.
- Track integration costs, synergy realization and final purchase-price allocations for Goodfella’s and Aunt Bessie’s.
- Test the assumptions and sensitivities behind the large goodwill and brand balances, pension obligations, tax provisions and Bjuv lease provision, and monitor Brexit and IFRS 16 impacts.