Nomad Foods Limited — FY2020 Form 20-F
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing; Q4-only results are not separately provided in the filing text. Financial statements are prepared under IFRS as issued by the IASB and endorsed by the EU; amounts below are in euros unless stated otherwise.
Business context
Nomad is a Western European branded frozen-food manufacturer and distributor, with brands including Birds Eye, Iglo, Findus, Aunt Bessie's and Goodfella's. It reports one operating segment, Frozen. Its 2020 savory frozen-food market share in its operating countries, excluding Switzerland, was 17.9%, versus 18.1% in 2019. The Findus Switzerland acquisition closed on December 31, 2020; it contributed no revenue or income to FY2020.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | €2,515.9m | €2,324.3m |
| Gross profit / gross margin | €762.5m / 30.3% | €697.9m / 30.0% |
| Operating profit | €359.2m | €283.5m |
| Profit before tax | €295.5m | €210.3m |
| Profit for the period | €225.1m | €153.6m |
| Basic / diluted EPS | €1.16 / €1.14 | €0.80 / €0.78 |
| Adjusted EBITDA / margin | €466.8m / 18.6% | €432.0m / 18.6% |
| Net cash from operating activities | €457.0m | €315.4m |
| Capital expenditure | €58.7m | €47.3m |
Revenue rose 8.2%; management reported organic growth of 8.7%, excluding the additional day and translational foreign-exchange effects. Gross margin increased 30 basis points: pricing, promotional efficiencies and mix contributed 160 basis points, partly offset by 130 basis points of cost-of-goods inflation. Adjusted EBITDA is a non-IFRS measure; the company’s definition excludes exceptional items and other adjustments.
Operating cash flow improved by €141.6m, primarily due to working-capital movements, partly offset by higher tax payments (€82.9m versus €45.6m). Investing cash outflow was €171.4m, including the Findus Switzerland purchase and capital spending. Financing cash outflow was €714.8m, principally reflecting €608.6m of share repurchases, plus debt and lease-liability repayments.
Liquidity, debt and balance sheet
- Reported available liquidity at year-end was €471.4m: €393.2m cash, €25.0m short-term investments and €63.9m available revolving-credit borrowings, less €10.7m bank overdrafts. Cash and cash equivalents in the cash-flow statement, net of overdrafts, were €382.5m.
- Total loans and borrowings were €1,758.8m, including €1,687.5m of syndicated loans and 2024 notes before deferred borrowing costs, and €70.4m of lease liabilities. The filing reports approximately €1,695.3m outstanding under term-loan facilities; investors should reconcile this description with the detailed debt note.
- Term loans and €400m of 3.25% senior secured notes mature in 2024; the €80m revolving facility matures in 2023. No revolving loans were drawn at year-end, although €16.1m was used for letters of credit and guarantees. The company reported covenant compliance.
- Total assets were €5,573.4m and total equity €2,126.1m, down from €5,904.5m and €2,556.7m, respectively, at year-end 2019. Goodwill and other intangibles totaled €4,052.1m. Pension and other employee-benefit obligations were €276.2m, versus €237.5m.
Material changes and unusual items
- FY2020 exceptional items were a net expense of €20.6m, down from €54.5m in FY2019. Items included a €17.8m charge related to release of indemnification assets, €10.0m of factory-optimization costs, €4.0m of Goodfella's/Aunt Bessie's integration costs and €2.3m of transformation costs, partly offset by a €12.5m supply-chain reconfiguration gain.
- The company repurchased and canceled 11.9m shares under its $300m program for €217.4m and 18.1m shares in a Dutch auction for €389.3m. Together, repurchases accounted for €608.6m of financing cash outflow.
- Findus Switzerland was acquired for a provisional €112.0m purchase price, with €75.6m provisionally allocated to goodwill pending final purchase accounting.
- A Founder Preferred Share dividend was settled with 3,875,036 ordinary shares issued January 4, 2021. This and other equity awards may dilute ordinary shareholders. The company stated it does not expect to pay ordinary-share cash dividends in the foreseeable future.
Outlook, commentary and key risks
Management said pandemic-related at-home consumption increased demand and revenue in 2020, while food-service demand declined under restrictions. It could not predict how long elevated consumer demand would last. It reported no material operational or supply-chain disruption in 2020 and expected to meet demand absent significant disruption, while noting that innovation plans may remain weighted toward core products. No quantified earnings or revenue guidance is provided. Capital expenditure is expected to increase in 2021, including in connection with factory needs and a multi-year business-transformation program.
Key risks include COVID-19 and demand normalization, supply-chain and workforce disruption, Brexit-related border administration and costs, volatile commodity, packaging, energy and distribution costs, competition from private label and discounters, and reliance on large retailers (the top ten customers represented 41% of sales). Other material exposures include floating-rate debt and LIBOR/EURIBOR benchmark transition, foreign-exchange movements, pension obligations, tax audits and uncertain tax positions, and impairment risk from substantial goodwill and brands. The company was in exclusive negotiations in January 2021 to acquire Fortenova Group’s frozen-food business; negotiations were preliminary and subject to due diligence and definitive agreement.
Management concluded it had adequate resources to continue as a going concern and expected liquidity to cover requirements for at least 12 months. PwC gave an unmodified audit opinion on the financial statements and reported effective internal control over financial reporting; Findus Switzerland was excluded from the 2020 controls assessment following its year-end acquisition.
Investor verification priorities
- Reconcile reported liquidity, cash-flow-statement cash and the differing debt figures in the liquidity and debt disclosures.
- Assess the sustainability of pandemic-driven demand and the offset from reduced food-service sales; check any subsequent trading updates.
- Review the sensitivity and assumptions behind goodwill and brand valuations; the audit identified goodwill impairment testing as a critical audit matter. No impairment was recorded in 2020.
- Review uncertain tax positions and audits: the filing reports €103.9m of provisions for tax uncertainties and identifies tax accounting as a critical audit matter.
- Evaluate the cash, leverage and dilution implications of share repurchases, Founder Preferred Share awards and potential acquisitions, including the proposed Fortenova transaction.