Business Context and Reporting Period
Company: Nomad Foods Ltd (formerly Nomad Holdings Ltd)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal Year Ended December 31, 2016
Accounting Basis: International Financial Reporting Standards (IFRS)
Reporting Currency: Euro (€)
Nomad Foods is the leading manufacturer and distributor of branded frozen foods in Western Europe, operating under the Birds Eye, Iglo, and Findus brands. The company operates ten manufacturing facilities across the UK, Germany, Italy, France, Sweden, Norway, and Spain. The 2016 period represents the first full year of consolidated operations following the acquisition of the Iglo Group (June 2015) and the Findus Group (November 2015).
Key Financial Metrics (Year Ended Dec 31, 2016)
| Metric | Value (€ millions) |
|---|---|
| Revenue | 1,927.7 |
| Gross Profit | 571.0 |
| Gross Margin | 29.6% |
| Operating Profit | 138.1 |
| Net Profit (Attributable to Parent) | 36.4 |
| As Adjusted EBITDA | 324.9 |
| As Adjusted EBITDA Margin | 16.9% |
| Total Assets | 4,709.5 |
| Total Equity | 1,902.5 |
| Net Debt (Approx.) | ~€964.2 (Term Loans) - €329.5 (Cash) |
| Operating Cash Flow | 282.1 |
Material Changes vs. Prior Comparable Period
Revenue Growth: Revenue increased significantly to €1,927.7 million in 2016 compared to €894.2 million for the nine months ended December 31, 2015. This increase is primarily due to the inclusion of a full twelve months of operations for both the Iglo and Findus acquisitions, whereas the prior period included only seven months of Iglo and two months of Findus.
Profitability: The company reported a net profit of €36.4 million in 2016, a substantial improvement from the net loss of €337.3 million in the nine months ended December 31, 2015. The prior period loss was heavily impacted by a €349.0 million charge related to the Founder Preferred Shares Annual Dividend Amount, which was reclassified to equity in 2016 and did not impact the income statement.
Exceptional Items: Exceptional items increased to €134.5 million in 2016 (compared to €58.1 million in the prior nine months). Key drivers included €84.3 million in supply chain reconfiguration costs (primarily the closure of the Bjuv, Sweden facility) and €29.6 million in Findus Group integration costs.
Finance Costs: Net finance costs rose to €62.1 million in 2016 from €35.5 million in the prior nine months, reflecting the full-year impact of debt assumed in the acquisitions.
Guidance, Outlook, Risks, and Unusual Items
Management Commentary & Strategy: Management intends to profitably grow the business through strategic initiatives, including the integration of acquired brands and expansion into new food categories. The company focuses on "Must Win Battles" (core products) and innovation to align with consumer preferences for healthier and more convenient options.
Unusual Items:
- Founder Preferred Shares: A significant non-cash charge of €349.0 million impacted the 2015 transition period. No such charge was recorded in 2016 as the liability was reclassified to equity.
- Supply Chain Restructuring: €84.3 million charge in 2016 related to factory closures and onerous contracts.
- Cisterna Fire: A net income of €4.3 million was recognized in 2016 related to insurance claims from a 2014 fire at an Italian facility.
Key Risks:
- Brexit: Significant uncertainty regarding the UK's exit from the EU, which could impact currency volatility, supply chains, and labor rights (24% of revenue is derived from the UK).
- Commodity Prices: Exposure to fluctuations in raw material costs (fish, vegetables, meat) and energy prices.
- Customer Concentration: Top 10 customers accounted for 37.7% of sales in 2016; reliance on large retailers creates pricing pressure.
- Food Safety: Risks related to product contamination, recalls, and reputational damage.
Important Facts for Investor Verification
- Debt Covenants: Verify compliance with financial covenants in the Senior Facilities Agreement, specifically the Debt Cover ratio, which is subject to adjustment based on leverage.
- Intangible Assets: Confirm the carrying value of goodwill (€1,745.6 million) and brands (€1,726.6 million), which constitute a significant portion of total assets and are subject to annual impairment testing.
- Founder Preferred Shares: Review the terms of the 1.5 million Founder Preferred Shares, including the conditions for the annual dividend (equity-settled) and the automatic conversion into ordinary shares after the seventh full financial year.
- Integration Costs: Monitor the realization of synergies from the Findus and Iglo acquisitions against the €29.6 million integration costs incurred in 2016.
- Foreign Exchange Exposure: Assess the impact of currency fluctuations, particularly the Pound Sterling and Scandinavian currencies, on reported Euro results.