Nomad Foods Limited — FY2017 Form 20-F
Reporting period: Fiscal year ended December 31, 2017; this is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under IFRS. Amounts are in euros unless stated otherwise.
Business context and key financial metrics
Nomad is a branded frozen-food manufacturer and distributor operating primarily in Western Europe under Birds Eye, Iglo and Findus. The company reported one operating segment, Frozen.
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | €1,956.6m | €1,927.7m |
| Gross profit / gross margin | €599.4m / 30.6% | €571.0m / 29.6% |
| Operating profit | €242.9m | €138.1m |
| Profit before tax | €168.5m | €76.0m |
| Net profit | €136.5m | €36.4m |
| Adjusted EBITDA and margin | €328.1m / 16.8% | €324.9m / 16.9% |
| Net cash from operating activities | €193.8m | €282.1m |
| Capital expenditures | €42.6m | €42.4m |
| Cash and cash equivalents at year-end | €219.2m | €329.5m |
| Borrowings on balance sheet | €1,398.4m | €1,446.8m |
Liquidity at December 31, 2017 was reported as €385.0m, comprising cash, available revolving-credit capacity and undrawn incremental facilities. The incremental €58m and $50m term facilities were drawn in February and January 2018, respectively. The company reported no covenant breaches and said it expected liquidity to be sufficient for at least 12 months.
Material changes versus FY2016
- Revenue increased 1.5%. Management attributed the change to volume and mix growth of 3% and pricing gains of 1%, offset by unfavorable currency translation of 2% and one fewer trading day (0.5%).
- Gross margin rose 1.0 percentage point, attributed mainly to favorable product and country mix and pricing/promotional efficiencies, partly offset by foreign-exchange-related costs.
- Operating profit and net profit increased substantially, while exceptional items fell to €37.2m from €134.5m. Adjusted EBITDA increased modestly, but its margin declined 0.1 percentage point.
- Operating cash flow fell €88.3m, primarily reflecting €99.5m of cash outflows related to exceptional items and €65.2m of cash taxes paid, compared with €49.2m and €24.9m, respectively, in FY2016.
- The company refinanced debt in 2017: it issued €400m of 3.25% secured notes due 2024, established new term loans due 2024, extended its €80m revolving facility to 2023, and repriced term loans in December. Management estimated approximately €3.7m of annual cash-interest savings from the repricing.
Outlook, commentary, risks and unusual items
- Outlook: The filing does not provide quantified FY2018 revenue or earnings guidance. It expects 2018 capital expenditures to cover capacity expansion and maintenance, cost-saving projects, information systems, innovation, regulatory compliance and other purposes. Management’s liquidity statement covers at least the next 12 months.
- Acquisition: In January 2018, Nomad agreed to acquire Green Isle Foods, including Goodfella’s and San Marco, for £200m (approximately €225m), with completion expected in Q2 2018. The purchase was expected to be funded from cash on hand; completion and realized benefits remained subject to execution and integration.
- Restructuring and provisions: The Bjuv, Sweden factory ceased operations in 2017. A €72.5m provision relates to an onerous lease at the vacant Bjuv site; the estimate is sensitive to assumptions about subleasing and future use. Total provisions were €140.8m at year-end.
- Exceptional and financing charges: FY2017 exceptional costs included strategic-implementation, Findus integration and supply-chain restructuring costs. Net finance costs included €20.1m of one-off refinancing and amendment costs.
- Debt, currency and input risks: Term loans bear floating rates, and the company is exposed to interest-rate and foreign-exchange movements, including dollar-denominated raw-material purchases. Hedging may not fully offset these exposures.
- Other principal risks: Competition from private-label and discount retailers, concentrated retail customers, commodity and energy costs, food safety and supply-chain disruption, Brexit-related uncertainty, tax audits and pension obligations. Top ten customers represented 41% of FY2017 sales; 94% of revenue was from the EU and 21% from the UK.
- Shareholder matters: The company does not anticipate ordinary cash dividends for the foreseeable future. It repurchased shares for €177.6m during 2017. A founder preferred-share dividend of 8,705,890 ordinary shares was issued in January 2018, creating dilution for existing holders.
- Asset concentration and audit: Goodwill and other intangible assets totaled €3,470.0m, including €1,745.6m of goodwill; no impairment was recorded in 2017. PwC issued an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective.
Most important facts for investors to verify
- Whether the modest revenue and Adjusted EBITDA growth translates into sustained organic growth and margin improvement.
- Why operating cash flow declined despite higher reported profit, and the expected timing of exceptional cash payments and tax outflows.
- Current debt, net debt, interest-rate exposure and liquidity after the incremental facilities were drawn and the Green Isle purchase is funded.
- The assumptions supporting the €72.5m Bjuv lease provision and the company’s ability to sublease or otherwise reduce the obligation.
- Green Isle acquisition completion, financing, integration costs and subsequent operating contribution.
- The potential impact of the 8.7m-share founder dividend and other equity awards on per-share value.
- Tax-audit outcomes, pension obligations and the recoverability of the large goodwill and intangible-asset balances.