Nomad Foods Limited — FY2019 Form 20-F
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone Q4 report; the filing does not provide a clear standalone fourth-quarter financial summary. Financial amounts are in euros unless otherwise noted. The company reports under IFRS.
Business context
Nomad is a branded frozen-food producer operating mainly in Western Europe, with brands including Birds Eye, Iglo, Findus, Goodfella’s and Aunt Bessie’s. It reported one operating segment, Frozen. The 2018 acquisitions of Goodfella’s and Aunt Bessie’s contributed to 2019 results; no acquisitions were made in 2019.
Key financial results
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Revenue | €2,324.3m | €2,172.8m | +7.0% |
| Gross profit / gross margin | €697.9m / 30.0% | €653.5m / 30.1% | Profit +€44.4m; margin −0.1 percentage point |
| Operating profit | €283.5m | €283.1m | Broadly flat |
| Profit before tax | €210.3m | €227.1m | −7.4% |
| Profit for the period | €153.6m | €170.5m | −9.9% |
| Basic / diluted EPS | €0.80 / €0.78 | €0.97 / €0.97 | Lower year over year |
| Adjusted EBITDA (non-IFRS) / margin | €432.0m / 18.6% | €376.4m / 17.3% | +14.8%; margin +1.3 points |
Revenue growth comprised 2.1% organic growth in the base business and 4.9% from acquired businesses. Management attributed the slight gross-margin decline mainly to lower-margin acquisition mix and cost-of-goods inflation, partly offset by pricing, promotional efficiencies and mix. Adjusted EBITDA is a company-defined non-IFRS measure and should not be treated as a substitute for IFRS profit.
Cash flow, debt and liquidity
- Net cash from operating activities was €315.4m, versus €321.3m in 2018. Capital expenditure was €47.3m, compared with €41.6m; the filing gives no formal free-cash-flow measure.
- Investing cash outflow was €73.8m, versus €513.2m in 2018, when €471.6m was used for acquisitions. Financing cash inflow was €251.4m, including proceeds from the 2019 share offering.
- Year-end cash and cash equivalents were €826.1m (including €0.1m restricted); cash-flow-statement ending cash, net of overdrafts, was €824.8m. Reported total liquidity was €887.6m, including €62.8m available under the revolving facility, net of €1.3m overdrafts.
- Year-end loans and borrowings were €1,875.3m on the balance sheet, including €109.0m of lease liabilities following IFRS 16 adoption. The company separately reported approximately €1,787.9m outstanding under term-loan facilities and notes, with no revolving-facility loans drawn; €17.2m of the facility was used for letters of credit and guarantees.
- Term loans mature in May 2024 and the €400m fixed-rate senior secured notes mature in May 2024; the €80m revolving facility matures in May 2023. The company reported compliance with debt covenants at year-end.
- Net employee benefit obligations were €237.5m, up from €200.6m. The company stated that no current requirement existed to fund plan deficits.
Material changes and unusual items
- Exceptional items rose to €54.5m from €17.7m. The 2019 total included a €44.0m charge from release of indemnification assets, integration costs for Goodfella’s and Aunt Bessie’s, factory optimization costs, Findus integration expenses and Brexit preparation costs; some legacy and restructuring items offset these charges.
- Net finance costs increased to €73.2m from €56.0m, including higher interest costs and €8.8m of losses on derivatives measured through profit or loss. IFRS 16 added €4.6m to interest payable.
- Nomad issued 20.0m ordinary shares in March 2019 at $20 per share, for gross proceeds of $400m (€353.6m); transaction costs were €11.1m. The 2019 Founder Preferred Share stock dividend of 6.42m ordinary shares was issued on January 2, 2020.
- IFRS 16 was adopted from January 1, 2019 using the modified retrospective method. It added right-of-use assets and lease liabilities and shifted lease payments from operating to financing cash flows; management reported a €2.8m reduction in 2019 profit before tax and a €17.7m increase in Adjusted EBITDA from the accounting change.
Outlook, management commentary and risks
Management said available cash, operating cash flow and access to the revolving facility should meet liquidity and other requirements for at least 12 months. It expected 2020 capital spending to support factory capacity and maintenance, cost savings, IT, innovation and regulatory compliance, but provided no amount or formal earnings guidance. The company reported no impairment in its 2019 annual goodwill review; the valuation used a 7.1% pre-tax discount rate and 1.0% long-term growth rate.
Key exposures include intense branded/private-label competition and retailer bargaining power; volatile commodity, packaging, energy and distribution costs; currency and floating-rate debt risk; acquisition integration and potential dilution; food safety and supply-chain disruption; tax assessments; and Brexit-related trade and operational uncertainty. The UK left the EU on January 31, 2020, with a transition period then scheduled through December 31, 2020. The filing also identified the emerging COVID-19 outbreak as a supply risk because some fish and spices were sourced from China; Nomad said it was seeking alternative fish sources and did not quantify an actual financial impact. No material off-balance-sheet arrangements were reported. PwC issued an unqualified opinion on the financial statements and internal controls, while identifying goodwill impairment and uncertain tax positions as critical audit matters.
Important facts for investors to verify
- Whether organic growth and the higher Adjusted EBITDA margin persist after separating acquired-business contributions and assessing the non-IFRS adjustments.
- The drivers and cash implications of the €54.5m exceptional charge, particularly the indemnification-asset release and any further expected charge from escrow-share releases in 2020.
- Debt service capacity, interest-rate and currency hedging, covenant headroom, and the composition of reported borrowings including IFRS 16 lease liabilities.
- The scale and duration of COVID-19-related supply or demand effects, Brexit-related costs, and any changes to sourcing or trade arrangements.
- Potential dilution from Founder Preferred Share awards, LTIP awards and other share issuances; ordinary-share cash dividends were not expected.
- Developments in tax audits and uncertain tax provisions, reported at €137.8m, and sensitivity of goodwill valuations to forecast assumptions.