Good day, and Welcome to the Nomad Foods Second Quarter 2022 Earnings C all. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, please press star then one. Please note that this event is being recorded. I would now like to turn the conference over to Anthony Bucalo, Head of Investor Relations. Please go ahead.
Hello, and welcome to the Nomad Foods second quarter 2022 earnings call. I am Anthony Bucalo, Head of Investor Relations, and I am joined on the call by Stéfan Descheemaeker, our CEO, and Samy Zekhout, our CFO. Before we begin, I would like to draw your attention to the disclaimer on slide 2 of our presentation. This conference call may include forward-looking statements that are based on our view of the company's prospects, expectations, and intentions at this time. Actual results may differ due to risks and uncertainties, which are discussed in our press release, our filings with the SEC, and this slide in our investor presentation, which includes cautionary language. We will also discuss non-IFRS financial measures during the call today. These non-IFRS financial measures should not be considered a replacement for and should be read together with our IFRS results.
Users can find the IFRS to non-IFRS reconciliations within our earnings release and in the appendices at the end of the slide presentation available on our website. Please note that certain financial information within this presentation represent adjusted figures for 2021 and 2022. All adjusted figures have been adjusted for exceptional items, acquisition-related, share-based payment and related expenses, as well as non-cash FX gains or losses. Unless otherwise noted, all comments from here on will refer to those adjusted numbers. With that, I will hand you over to Stéfan.
Thank you, Tony. Good afternoon, everyone, and thank you for joining us on the call today. We're pleased to review our results for the quarter. We performed well in Q2 despite difficult macro conditions across Europe. We began the year already addressing an inflationary environment, and we adapted quickly to meet additional challenges brought on by Ukraine war, both inflationary and otherwise. We're encouraged by the resilience of our brands, our people, our consumers, and our customers. Our revenues grew 17%, while our organic sales strength improved sequentially from Q1. Our value share was stable while we passed price increase to mitigate cost inflation. Our supply chain provided excellent service to our customers with fill rates improving materially in the half year. Year to date, service levels have improved 160 basis points.
We will continue making crucial supply chain improvements while integrating and introducing new products to further drive organic growth in our newly acquired Adriatic business. We are now through the most challenging period of the year on input costs, and we have covered nearly all of our raw material costs for 2022. Additionally, we have worked effectively with our retail partners to set our pricing at levels that address input cost increases and achieve gross margins, which will allow us to appropriately support our brands. As a result, we expect our business performance to improve materially as the year goes on. As all of you know, Nomad has been navigating an extraordinary environment that includes high consumer uncertainty, inflation, as well as the outbreak of the war in Ukraine.
The normal cadence of our business would be to have price discussions annually with the retail partners, executing the increases in Q1. Given the rapid change in input costs, our pricing actions have become far more dynamic given the realities of that dramatic cost inflation. As we pass price increases this year, we expect pricing to fully offset volume declines, leading to low single-digit% organic sales growth for the year, which we see as a relatively good outcome and a testament to the strength of our brands. We believe further price increases will be necessary to recoup cost inflation and maintain our margins. This should allow us to exit the year with the gross margins and cash flow appropriate to maintain the proper investment in our business.
With that, I'd like to recap our second quarter key financial metrics, beginning with reported revenues of EUR 697 million, which increased by 17%, driven primarily by the first-year inclusion of our newly acquired Adriatic business. Organic revenue declined by 3.2%, a sequential improvement from Q1, but still reflecting the lingering impact of COVID lockdown comparisons and category weakness across Europe. We delivered an adjusted gross margin of 28.2%, 260 basis points lower year-on-year, reflecting soft organic sales and higher raw material costs. Adjusted EBITDA of EUR 127 million represents a 3% increase compared to last year as higher input costs offset all the positive factors. Finally, adjusted EPS was EUR 0.40 per share flat year-on-year. Turning to slide 4.
Our 17% revenue growth benefited from strong ice cream sales in the Adriatic region, while we realized 2.5% net pricing for the company this quarter. In July, we saw a recovery in organic sales trends as our pricing was delivered to the market and relapped more normalized results. Q2 represented the most unfavorable mismatch of price and cost for this year and is weighed on our margins. We are now turning this favorably. As we discussed in Q1, there is always a timeline between cost increases, which are linear, and our price increases to the retailer, which are staggered. We are now better matching our pricing to total inflation, and we are maintaining our dialogue with retailers about further price initiatives, which will recover our gross margin towards long-term average levels.
Additionally, we have good visibility on cost as we are more than 95% covered for the rest of the year, up from 85% in Q1. On energy, we are covered for this year and well covered for 2023. In H1, we landed our pricing in the market. In a dynamic pricing environment, our overall value share was stable, while we gained 60 basis points in our must-win battles. Our must-win battles are in the categories and markets where we define our success, and we are pleased with this performance. When looking at the challenging consumer environment, high inflation as well as the consequence of the Ukraine war across Europe, we're taking a more conservative posture. As a result, we are amending our adjusted EPS guidance range for 2022 to EUR 1.65-EUR 1.71 from our previous EUR 1.71-EUR 1.75.
This represents high single-digit growth. Longer term, our business strategy is on track, and we are confident we are still on plan to deliver our 2025 adjusted EPS guidance of EUR 2.30 . Turning to slide 5. Nomad Foods is a company that is always learning and evolving to new challenges. We've done this in the past as an organization many times. As we discussed at the top of our remarks, the war in Ukraine exacerbated the already rising inflation in Europe and disrupted global supply chains, especially in agriculture and energy. We're adapting quickly, and in Q2, we accelerated our fish diversification strategy, grew Green Cuisine, and moved quickly to fully integrate our rapidly growing Adriatic unit. First, we are aggressively de-risking of fish supply.
We have plans to address this issue before the war, but we have picked up the space in Q2 as the volatile global macro environment is threatening fish supplies. We are securing new sources of farmed fish as well as adding geographic sources and species to augment our current supply. We remain committed to sustainability and we are staying within MSC and ASC guardrails in these plans. Second, Green Cuisine had a strong half year with mid-single digit organic growth despite negative headwinds in the category. Green Cuisine has grown market share nearly 300 basis points in the trailing 52 weeks. In Q2, Green Cuisine won multiple trade awards in the U.K., and one in Italy. We recently launched an advertising campaign in the U.K., which is being well received by consumers and retailers.
Finally, Q2 sales growth in our newly acquired Adriatic business was well ahead of plan, with strong volumes in Croatia and Bosnia and Herzegovina. In May, ice cream sales had a good early start to the season and benefited from historically high temperatures. Food service was strong as COVID restrictions were lifted and traffic returned to restaurants, bars and hotels on the coast. Our integration is ahead of schedule and we are excited about the future of this new acquisition. With that, I will turn the remarks over to Samy. Samy?
Thank you, Stéfan, and thank you all for your participation on the call today. Turning to slide 6, I will provide more detail on our key second quarter operating highlights. We reported revenues of EUR 697 million in the second quarter, a growth of 17% year-on-year, driven primarily by the acquisition of our Adriatic business. As a reminder, that transaction was finalized in September 2021 and will become fully integrated into our organic numbers in Q4. Second quarter revenues also had a small benefit from favorable FX effects. These revenue components were offset by a 3.2% decline in organic revenues due mostly to lockdown comparison and a generally weak performance across the category. Gross margins were 28.2% during the second quarter, reflecting a 260 basis points decline versus last year.
The inclusion of the Adriatic, whose gross margins are seasonally higher at this time of the year, helped offset gross margin pressure. Moving to the rest of the P&L. Second quarter COGS increased 21.4%, an increase of EUR 88 million versus last year. Our adjusted gross profit grew 7.2% to EUR 197 million. Adjusted operating expense of EUR 92 million was up 19% year-over-year. This rise in operating expense was due exclusively to the inclusion of the Adriatic division in our numbers. As a percentage of sales, operating expense was 13.2% this quarter versus 12.9% last year, an increase of 30 basis points. Our EBITDA and EPS performances were impacted negatively by the rapid rise in input costs.
Second quarter adjusted EBITDA of EUR 127 million was at 3% versus last year, and our adjusted EPS of EUR 0.40 was flat. Turning to cash flow on slide seven, we generated EUR 36 million of adjusted Free Cash Flow in the half year, equating to 25% adjusted Free Cash Flow conversion. This is below last year, due mostly to a buildup of raw material inventories as well as the inclusion of a seasonal working capital outflow of the Adriatic business which was not in the base period. Change in working capital was a EUR 125 million use of cash, up sharply from last year as we built raw material inventories in anticipation of possible shortages. We believe this was prudent considering the disruption risk in the raw material markets. The inclusion of the Adriatic also impacted this result.
CapEx of EUR 34 million was flat versus a year ago. As we mentioned in Q1, we do expect higher CapEx for the year as we support strategic investment decisions and incorporate the Adriatic into our broader spending plan. Change in cash tax decreased by EUR 6 million- EUR 25 million, while cash interest was stable at EUR 38 million. We expect to deliver improving Free Cash Flows through this year, but with delivery weighted heavily towards Q4. However, the combination of stepped-up CapEx, higher raw material inventories, and the first year implementation of the EU's Unfair Trading Practices Directive will leave us short of our typical 90%-100% long-term conversion target. With that, let's turn to our final slide 8, to review our 2022 guidance, which we are adjusting from CAGNY in our Q1 earnings report in May.
Our guidance on sales and EPS is based on our best projections of cost inflation and other factors in the second half of 2022. Stéfan mentioned in his remarks, we plan to recover cost inflation through pricing in the back half of the year, and thus we expect an improving gross margin profile over the course of the second half. To be clear, we expect a sequentially better financial performance in the back half of the year based on improving margins as our pricing takes hold. We expect organic revenue growth in the low single-digit range for 2022. This will be driven by price increases in half two. Low single-digit growth is consistent with what we guided in May. We expect a significant spread between price and volume, but we expect price to fully offset volume declines.
We expect the Adriatic division contribution to drive reported revenue guidance of high single-digit% for the full year. For capital allocation, it is our top priority this year to use our cash to support operations. We still see share buyback as central to driving shareholder value. However, in Q2, we did not repurchase shares after moderate repurchases in Q1. Our EUR 500 million share buyback program remains in place until August 2024. For the balance of 2022, we are taking a cautious stance in consideration of a volatile consumer outlook and other factors such as the impact of the Ukraine war across Europe. As a result, we are amending our adjusted EPS guidance to a range of EUR 1.65-EUR 1.71 per share from the previous EUR 1.71-EUR 1.75 .
We believe that we remain on track to reach our 2025 adjusted EPS target of EUR 2.30. That concludes our remarks. I will now turn the session over to Q&A. Thank you. Operator, back to you.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. Our first question today will come from Andrew Lazar with Barclays. Please go ahead.
Great. Thank you so much. Nomad's running organic sales down about 4% in the first half, and this implies obviously more than 4% growth in the back half. I appreciate more pricing is to come and as you said, comps are easier. I guess mid-single digit organic seems maybe somewhat of a tough task in light of the macro environment in Europe. Maybe can you discuss a little bit of the bridge on how you get there? Is it mostly pricing kicking in with an expectation that volume elasticity does not worsen from here? Pricing, as you mentioned, didn't accelerate much in 2Q, but sounds like more is gonna become visible in the P&L. What's your expectation for the benefit of pricing for the full year? Thanks so much.
Good morning, Andrew. Thanks for the question. Let me handle the question and let me dissect a bit the numbers to your point. I think H1 was really representative of the end of the COVID comparison. In terms of price, however, we successfully negotiated our price increases. It really comes at the end of the quarter.
When I see, for example, July excluding the Adriatics in terms of sales is around +7%, which is really representative, you know. COVID is behind us. Indeed, you know, the price increase that we have negotiated during the first half are really starting to kick in. Then, when I'm moving forward to the full year, what we see is we're expecting pricing in the region of mid-teens. Elasticity we in line in terms of market share, and obviously we need to decline, but the volumes will decline as a result. With that, you know, we think you know we're going to be there. That's a combination. It's really about end of COVID, market share, and more importantly, it's pricing.
Samy, any other add-ons?
No, I think it's effectively there will be an acceleration with Q3 and Q4, that's for sure. Yeah.
Great. Just to make sure I heard it right, you said July sort of on an organic basis was up 7%, I think. Then for-
Yeah.
On a full year basis, I think you said you'd expect mid-teens pricing. Did I hear that right?
Correct.
Yes. Correct.
Great. Thank you.
Our next question will come from Jason English with Goldman Sachs. Please go ahead.
Hey, guys. Two quick questions. First, follow-up on that pricing. It sounds like you have most of it already negotiated and locked in, but I think I did hear you say in prepared remarks that you believe you're gonna need further price increases to cover the cost pressure. Can you clarify?
Yeah. Hi, Jason. Yes, absolutely. We have gone through, let's say the first wave that we had been discussing previously, and successfully. As we alluded to earlier, what we had said is effectively that we would consider a third wave towards the end of the year pricing, which is primarily an advancement of the Q1 pricing into this year, Q1 of next year. That's key now in the plan for sure. Yes.
Thank you. That makes a lot of sense. Appreciate the clarification. The acquisition, the Adriatic region, the M&A contribution continues to exceed our own expectation every quarter. It looks like the business is doing quite well. If it were including your base, what would your organic sales growth look like through the first half of the year?
Well, it's a very good question, and indeed, it's working extremely well, to your point, ahead of expectations. Market share-wise as well, by the way, they also have increased their pricing. All is green in the Adriatics. When you compare, let's say, the -3.2% that we have excluding the Adriatics for the existing business in terms of sales, we would do a pro forma of Q2 for the Adriatics, and we would include it in, obviously, the full business. We would be just short of +1% for the full business. That
Wow. Quite.
That's what it is. Yeah. It's a sizable difference.
Yeah, for sure. Do you think that's durable or is this just unique because the warm weather boosting ice cream? Or is this really kind of reflective of what this business can contribute to you?
Well, obviously, weather is playing a role. Don't get me wrong. God knows and Jason, you know, what's going to happen next year in terms of heat. Nobody knows this. The only thing we know is also we're gaining market share, and we also know that, well, we could sell even more. This also a learning for us, you know, in quarter four. Okay, can we also even produce ahead of time? We're learning all these things. Difficult to know. Let's not forget that, the heat wave is playing a role, negative role for the rest of the business, much less pronounced, to be fair, but it's a bigger business. Yes, all in, we're very pleased with what we see with the business.
We're launching ice cream and we love ice cream, Jason.
Maybe, Jason, what I would just add into Stéfan's point is the fact that effectively this year we have seen as well an acceleration of the business driven by the fact that the tourism has caught up as well.
Yeah.
Which effectively has pushed the impulse category probably even further.
Yeah.
Advancement of effectively what we had anticipated in the LRP into this year. Let's say from a health standpoint, this is a very healthy business we do with good growth potential, definitely.
Great to hear. Thank you, all. I'll pass it on.
Our next question will come from Robert Moskow with Credit Suisse. Please go ahead.
Hi. Thanks. Your guidance assumes mid-teens pricing for the year, which means a rapid ramp in the back half. I think it also means a 15% decline in volume for the year with an equally rapid decline by the end of the year. You said that you've loaded up on a lot of raw materials to prepare for shortages. What's the impact of a decline in volume like this on your operating leverage and also on your balance sheet?
Yeah. I think the net of all of that is still effectively going to give low single-digit% growth for sure. There is pricing, there is mix, and there is volume as well. When you combine the totality of that, we are not getting to a mid-teens% volume decline. We are getting to probably a high single-digit% volume decline, and those costs are being factored into our operating, let's say, cost overall. We've been planning for that as we effectively entered into this year with the significant pricing, I mean, from that standpoint, and that's reflected in our gross margin projection.
That implies a pretty significant mix benefit. What's driving the mix benefit?
Well, we clearly are having most of the categories that have higher margin than the country that have higher margin, that are clearly executing pricing and, driving those category with higher margin that are pushing, that are going faster than the rest. The fact that, for instance, we're starting with the U.K., very much all of the pricing wave is a significant contributor as well to this acceleration, which explains effectively the fact that there is a mix factor on the category side and on the country side as well.
Okay. Thank you.
Our next question will come from Stephen Powers with Deutsche Bank. Please go ahead.
Yes. Hey, good morning. Can you hear me okay?
Yeah.
Yes.
Okay, great. Just on that last, just to clarify, I interpret. Is mix expected to be positive on the year, or is it expected to be negative on the year such that you have mid-teens pricing, negative high single digit volume and sort of a bit of negative mix to get you back to low single digits for the year? I'm a little confused if it's positive or negative mix you're expecting on the year.
No, actually, it's effectively the pricing range on average is about, let's say, the mid-teens% that we have just talked. The volume is going to be in the range of about, as I said, high single digit%, I would say on that one. There is effective balance of things if you know from a mix standpoint, and there is as well, let's say an increased support, I mean, driven by the promotion that we need to put in place in order to drive the business forward, which effectively equates to the low single digit% growth for the base business.
Understood. Promotion. Okay, thank you. I also. Is there an ability for you, given your visibility and some of your hedge positions into 2023, is it too early to talk about an early expectation of inflation for 2023 at this point? Any color you can offer us as to what 2023 looks like from a cost inflation standpoint?
I think it's too early. I would say at this stage that there's a lot of moving parts. As you have seen, some of the commodities are going down now for some of the items, even though effectively those represent a tiny portion of our portfolio, there is effectively a downward trend on those. On the others, there is a stabilization at the peak point, and we are effectively as well, continuing extending some of the hedging activities we had in areas like energy in order to cover for the next year. I think expect more as we provide guidance for 2023.
Understood. Okay. I also, if I could, I wanted to ask about operating expenses. They came in higher than I think you know, we and consensus was expecting this year. I understand a lot of that is probably Fortenova and that rolling through ahead of schedule. From your perspective, were the operating expenses in line with your expectations? You know, to the extent they came in ahead, is it really only Fortenova or are there other inflationary aspects you know, impacting that line of the P&L as well that we should be thinking about?
No, there is clearly, I think, this is the area, as we have talked in the past, I mean, on COGS and on operating expense, where we clearly have a pretty good visibility on. Except for Fortenova, there hasn't been any kind of noticeable item that would effectively be of importance for you guys.
Okay. Very good. Thank you very much.
Our next question will come from John Baumgartner with Mizuho. Please go ahead.
Good morning. Thanks for the question. Sammy or Stefan, I'd like to ask about the positioning for your frozen categories here at retail. From a pricing perspective, the price gaps relative to shelf stable and fresh, they seem to have widened even compared to the credit crisis 15 years ago. I'm curious. A, h ow do you think about consumers trading down to frozen in this environment where the price gaps would seem to be pretty favorable for relative value? B, what are you seeing from retailers? I mean, do you expect them to manage the frozen category differently over the next 6-9 months? Are they increasing visibility for your categories? Are they supporting non-price promotion for these categories? Just how do you think about frozen versus fresh and then ambient in this environment? Thank you.
Well, overall, to your point, John, I think, you know, this is a category that is doing well in recession time. At this stage, you know, we're seeing the same. In terms of fresh versus the others, I think it's still very difficult to read, you know, John, because at the same time we see that some people are increasing price later. Let's see a bit, you know, where things standing. But what we see at this stage, we haven't seen any significant difference with the other categories. But I think the big piece to remember is, A, you know, we're getting out of COVID and additional new consumers are coming.[B,] y ou know, you can see some people coming from out of home to restaurants and moving back to the retailers. Obviously, again, this category is doing well. I think what we will also do together with the retailers is to explain how great this category is, not only in terms of affordability, but also in terms of waste, for example. This is great in terms of cost of living. You know, this is a category where you can keep it, you know, it doesn't lose anything. These are the kind of things we're going to do much further in the future.
Are we confident with the long-term future of this category, especially in recession time? Absolutely.
Okay, thanks for that. Samy, question for you on the guide for 2022. You've lowered EPS but maintained net sales in that high single-digit range. Can you discuss maybe where in the P&L you're taking a more conservative stance, you know, tied back to the macro comments? Is it more gross margin? Is it more OpEx, you may have to reinvest back more? Just any clarity on the incremental change to the outlook. Thank you.
Yeah. It's not on the OpEx, I mean, to be very clear. On the COGS, we have increased visibility overall. The reality is that we are really simply reflecting a cautious view on the fact that the economic environment is becoming quite uncertain there. There are pressure on effectively the top line that would require probably further strengthening of the business in order to make sure that the pricing is going through over the full year.
Okay, thank you very much.
Our next question will come from Cody Ross with UBS. Please go ahead.
Good morning. Thank you for taking my questions. I just wanna follow up on last question there. It sounds like you're taking a more cautious stance on top line view, but you didn't for your organic sales outlook. Can you just comment further there, what's driving?
Well, the margin change that you see from one guidance to the other is effectively within the range of what is low. Let's say when we talk about high single digit revenue growth, which remains the case, I mean, at this stage, is effectively continuing to be the case. The only element there, as I said, is to a marginal impact. Overall, what we see is effectively some constraints, some elements that potentially could affect our top line progress overall for the year, but that would still leave us in the range of high single digit overall. That's not gonna change from that perspective, but effectively there will be some movement there. This is what effectively is creating the level of uncertainty that is impacting our EPS guidance.
Simply put, it takes probably more effort to execute three price increases than what we had anticipated.
Gotcha. It sounds like still in the range, just at the lower end of the range now. Understood.
Exactly.
Um, and-
We are determined to have the price right, but let's say to get there, it might be a bit more difficult. Definitely for us, it's a priority number one.
Cody, the one thing I would add on this one is that we clearly have a plan to get at the higher end of the range. Simply, there are uncertainty which we felt important to reflect. Clearly the 171, if we're leaving it within the guidance range, is clearly within reach as well. This is the range we're talking about.
Understood. That's helpful. Thank you very much for that. Just last question from me. You didn't repurchase any shares in the quarter, which is in line with your prior guidance as you worked to secure inventory. Can you talk about your potential to increase share repurchases going forward, especially given where the stock is trading at? Thank you.
You're right. I mean, all the points you just made are absolutely correct. What we clearly state is we will continue to support the operations, which is clearly your number one objective there. In an environment of supply constraints, I mean, this is really critical for us to make sure that we have the product we need at the right price in order for us to clearly serve our consumers. From a share repurchase standpoint, this is effectively something that we have on the radar screen, as you know, in terms of returning, let's say, the appropriate level of return to our shareholders, and it's taken into consideration within the grand scheme of other options that we have. At this stage, clearly this is one possibility, but for the time being, the focus remains supporting the operations.
Our next question will come from Jon Tanwanteng with CJS Securities. Go ahead.
Thank you. Good morning. This is Daniel Moore in for Jon. A lot of the questions have been covered. Maybe just any updates on the strategic alternatives process, one. Two, any detail, additional detail you can share in terms of securing alternative supply for fish? You mentioned that in your prepared remarks. You know, any specificity there would be great. Thank you.
You know, let me cover. I think you're talking about fish most of the time. That's the key question I understand. From that standpoint, it's you know, we've taken a lot of steps. We've made a lot of improvements where you know, the risk has definitely gone down since last time. We've increased purchase from outside of Russia. We've gone to other species. And also very importantly, you know, we also have come to. We're starting to reduce our reliance by going with farmed fish, obviously of the high quality. But we're starting with this piece, and we've made a lot of progress. We've made all the tasting session. The consumers are very pleased with the outcome.
We're going to start very soon, you know, the industrial production. These are, you know, exactly the kind of things we said we would do, and we're doing it. On top of that, you know, the last piece is we also said that the fishless part, which is part of Green Cuisine, is really on fire. This combination makes it that definitely we are reducing our reliance on the on that part of the fish.
On your first question, which was the search in the I think.
Yeah.
There's no more additional comments for me to provide than the one that you're aware of, I mean, at this stage.
Understood. Thank you.
Our next question will come from JM Shekein with Citi. Please go ahead.
Hi. Thanks for taking the question. I also wanted to ask on the frozen category, what impact you're seeing, if any, from private label just amidst the price hikes. As you move forward, do you expect to see additional pressure from the private labels? Thanks.
Overall, as you have seen, you know, we have maintained our market share. That's given the environment is not something easy, but we've been able to do this really well. In terms of must-win battles, you probably know what our must-win battles are. That's really the categories where, you know, we want to win in and also in the countries where we want to win. In addition, we've increased market share in the course of the last quarter, and especially in H1. Now, obviously, with what we have here, we want to go obviously and increase the market share in the future. I think we have the right brands, we have the right programs and we're doing well vis-à-vis our private label.
Let's never forget that all these guys are going through the same kind of purchasing, you know, and cost of goods increases like us. The only difference is, which is obviously we're moving ahead, you know, we are the price leaders and we are most of the time ahead of the curve in terms of pricing. The only thing we don't know by definition, if and when, you know, these guys are going to increase prices, but they will obviously. They should at some stage. Again, I'm not in their shoes. Overall, you know, the brand equity is stronger than ever. We're very pleased with what we're doing.
The priority number one, as we said, is to make sure that we're going to have the right gross margin, and we're going to be in a position to start, you know, 2023 exactly at the level we wanted to be able to reinforce our brands.
Great. Thank you. Appreciate the call. I'll pass on.
Our next question will come from Brian Gaffney with Neuberger Berman. Please go ahead.
Oh, great. Thanks a lot for the call. Just a couple questions on cash flows, if you don't mind. Can you just sort of break down the cash flows relating to exceptional items? They're about EUR 29 million year to date. I know historically they've been running over EUR 15 million for the last sort of, effectively the last four quarters. Can you just give us an idea of when you'll get them sort of below EUR 15 million or maybe some sort of color for the full year would be great. Also working capital. There's quite a large outflow year to date, and I know that's inventories and receivables. Any sort of guidance on where you see working capital, you know, for the year end, and ultimately what the drivers are for that large outflow?
Maybe just one final question then, just in terms of the fish sourced from Russia. Can you actually quantify what percentages is sourced from Russia, either maybe at the end of FY 2021 and where you are today? Great. Thank you.
Yeah. I would suggest that, let's say on the offline item, we took this one, I mean, offline, I think in the follow-up session. I think it makes more sense, I mean, to talk this. On the working capital, clearly there has been effectively a significant rise in the working capital driven by the investment we have made in inventory. I mean, particularly in raw material and packing material in order to secure the supply. There has been effectively as well the inclusion of Fortenova, I mean, in there that is driving, let's say a part of the substantial, I mean, rise in working capital.
That we expect over time in the year, we're taking a very aggressive look at our cash flow in order to make sure that we deliver a cash performance that is consistent with the plan that we had in place by revisiting our CapEx, our inventory approach, to make sure that frankly, we clearly have what we need in order to safeguard the year, enter the year with the right level of inventory. On the other side, effectively go on the journey of, let's say, taking it down as we move forward on that. We clearly expect substantial improvements in the fourth quarter in particular, and returning, taking into account all the investment we have to make, I mean, in Q3 in working capital. As far as the Russian fish is concerned, you understand that for commercial reasons we are.
It is significant, but for commercial reasons, we are not disclosing the percentage of the amount. As I said, for all the reasons I mentioned, you know, like going to other species which are not Russian, what's more southern hemisphere, which is more going to Pangasius, which is also about, you know, plant protein. We see that it's starting to go down, and it will go down and down, you know, over the next quarters and years. Still, you know, I think we believe that in the future we will still work with our Russian suppliers, but we have now and we will be in a position to move to switch then faster and easier from one category to another.
Okay. No, that's great. Can you just put in context the level of cost inflation you're seeing for fish? 'Cause obviously you're changing suppliers and there's obviously general cost inflation anyway. Just what level of inflation you're seeing? Thank you.
We see broad-based inflation in virtually all of our ingredients, I would say, on that one. It's in the double-digit range as we have talked, I would say overall, depending on the species, depending on the category, that's effective broad-based inflation that we see overall.
Appreciate the color. Thank you.
Again, if you'd like to ask a question, please press Star then one. Our next question will come from Adi Arya with HPS. Please go ahead.
Hi, good morning. Thank you for taking my questions. Can you hear me okay?
Yeah. Yes.
Awesome. Thank you. Just to finally round off on the fish point and a couple of people asked. I appreciate you might not be able to disclose the exact percentage, and appreciate obviously the fish side is doing well and you're moving to other species. Just on, I mean, it clearly represents a material part of the fish sourcing. I'm just curious, was there no sanctions impact on the Russia side? Then maybe could you speak to fish sourcing in China? Has that been okay? Maybe directionally would maybe, if you say in the next year or so, do you see kind of what kind. It says U.S., Russia, and China, what will be the majority kind of region providing your fish? Maybe you could talk directly towards those regions and what you've seen.
Okay. Let me start with the first part of the question, which is the sanctions. From the European standpoint, EU, no sanctions vis-à-vis whitefish, which makes, by the way, a lot of sense because they've checked, you know, so what the impact would be for the consumers. They've come to the conclusion that for the consumers it would be much more negative for it than for anybody else. That's one piece. As you may know, you know, with some tariffs, 35% have been levied in the, in the U.K. You know, we're, we've taken some strategic decisions, and for us, you know, this is just negligible. It doesn't impact, you know, really our fish in the U.K.
Let's not forget, you know, we have several factories and obviously several ways to source the fish. That's one thing. As I said, looking forward, we believe that, you know, that we're going to reduce our reliance on the Russian fish. The Chinese processing, well, you know, it's been a bit during end of Q1, early Q2, you may remember with the Shanghai lockdown, you know, it was a bit chaotic. We know it's back on track.
I would say if I, you know, again, if I could see looking forward, it's going to be really a combination of white fish between the U.S., Russia or Chinese Russia, but also, let's say the farm fish mostly coming from Vietnam at the right level will be very important for us. We're in the process to secure, you know, long-term supply at the right level with the right quality. Very much the way this company did something like 20 years ago with MSC, Marine Stewardship Council. We're doing the same now with the ASC, which is the equivalent for farm fish.
We're going to set the standards, and the standards will be high, because that's exactly what we are, which is obviously good value and great value and great quality.
Okay. Thank you very much. Moving just to the cost base, what percentage of sales does energy represent? Again, helpful, like you said, double-digit increase on fish price. It'd be interesting to know what kind of range of increase have you seen on your energy costs. Obviously it's material given your cold chain requirements.
Yeah. I mean, we don't disclose, let's say, the share of energy in the total cost. What we can tell you is that it is of importance, I mean, of course. Because of all of it, effectively, I mean, the cooking and the whole chain that is associated with that. What we've done on energy is we have taken a hedging approach, I mean, to that, so that we started since the beginning of the year that has enabled us to level out the cost this year and be well hedged, if you want, throughout, let's say, the middle three-fourths of the next year. We've been managing it quite, let's say, well overall in order to mitigate impact this and next year.
Okay. Thank you. Have you considered kind of the availability of energy? Obviously, for example, in Germany and France and some European countries, if you weren't able to get gas, would that have any material impact?
Right. It's a very good question. As you can imagine, to your point, there is price and there is also availability. We're seeing, and that's one of the reason, by the way, over the last two months, you know, consumer outlook has also obviously significantly worsened, but that's something else. In terms of of availability, what we're checking is obviously the ability for us to move from gas to other energy. We're working very hard on this piece, but we've made a lot of progress in terms of ability to switch from one to another.
Okay. That's really helpful. Thank you. Finally from me, I just read in the materials that Fortenova revenue of about EUR 29 million in 2019, and then EUR 261 million in 2020, and then EBITDA declined in that same period from EUR 59 million to EUR 50 million. Could you please give some color on that? Why did it decline? And obviously you've mentioned it's growing very well organically in the most recent period. Why did that happen between 2019 and 2020?
Yeah. There was a clear impact, I mean, driven by COVID, I mean, over there. I mean, because this is an area where tourism is of importance. As you know, I mean, it's directly proportionate, I mean, to tourism. As we see, clearly COVID now, let's say, in the back, I mean, in the base period, and we see tourism going back and combined with a very hot summer, we see a particular combination of, let's say, the moon and the stars align, and the business is doing very well this year compared to the prior year.
Well, if you don't mind, there is another thing which is something we could see from the start is the former owner was no longer considering, you know, that part of the business as strategic. It was very much, you know, based on retail. We've seen that several times. We've seen, you know, a difference when it's really the focus for the whole organization. We're starting to see already on top of obviously, as we said, you know, the end of COVID. There is also the heat. We're making progress in market share.
This is the kind of things where when you have, you are fully focused behind one category, what it does.
Okay. Understood. Sorry, do you think, for example, for 2022, that the 2019 pre-COVID levels is a decent number to go by, and then they'll keep carrying on growing from there, or is there a different kind of just on a kind of revenue level, the different area, ballpark we should look toward?
No, I think the business will continue. I mean, this year is on a roll and growing really well, double-digit growth. It clearly will end up the year within the range of double-digit growth as well. I mean, Nomad will be a key contributor to the rest of the business as we have alluded to that. As we said, I think earlier in one of the earlier questions, there is a bit of a forward impact of the fact that the acceleration of tourism that we had planned to be spread over the out years is concentrated more this year, exacerbated by summers. We probably have an exceptional acceleration of growth this year on Fortenova, but it will continue to grow in the out years.
Okay. Finally from me, sorry, would it be reasonable to assume then? Do you make any change? I think you guided towards EUR 2.9 billion revenue as your expectation for the year in the Q1 call. Is that directionally still where you expect to come out, or would you make any changes to that?
We've maintained the guidance, I mean, on the side that we said effectively high single digit revenue, I mean, fully included. I think that's unchanged in terms of the guidance that we gave on sales.
Okay. I'll jump back in the queue. Thank you very much.
This will conclude our question and answer session. I'd like to turn the conference back over to Stéfan Descheemaeker for any closing remarks.
Thank you, operator. We adapting quickly to a dynamic and challenging marketplace. Our world has been changed by the back-to-back crisis of COVID and the Ukraine war, and I'm very pleased with the determination of our people and how well we have adjusted. We have strong plans in place for the back half, and we are well prepared for 2023. Thank you very much.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.