People show up. All right, thank you all. There are a few people out in the hallway. They'll be straggling back in. Let me grab a seat, get comfortable. Bias and prejudice can be a source of rich opportunities in this industry. Companies and investors sometimes chase the hot new trend too far or for too long, ultimately overpaying to gain exposure. That's a rich opportunity if you happen to be a seller. Sometimes value or growth opportunities are overlooked because of a bias that a category or market is too mature or too commoditized. That can be a rich opportunity if you happen to be a buyer. This, of course, is the origin story of Nomad Foods, a company that ventured where few other food companies wanted to venture, into the European frozen food market. Why? Surely there's no profitable growth to be found there.
That's the bias that created the opportunity that over the past five years has turned in to be a phenomenal growth story. EBITDA or sales, EBITDA, and EPS compounding at a 8.5%, 10%, and 11% CAGR. That's top-tier growth by industry standards, and management continues to see a rich pipeline of opportunities going forward. To tell us how they've achieved this success, what they have in store for the next five years, is the firm's esteemed CFO, Samy Zekhout. Sammy, thank you for joining us.
Thank you.
Great seeing you. I love the shirt, as always. This is a big audience. Start with a quick primer. Who is Nomad? What does your business mix look like today from a category and country exposure perspective?
Very good. Nomad is the leading frozen food business in Europe in the savory frozen food sector. We are now about a EUR 3 billion business in net sales, a bit more than that. We are present in 19 countries, at 23 manufacturing sites, 8,000 people, I would say, overall. We have the privilege to own brands like Birds Eye , Findus, Iglo, Goodfella's, and Bessie, and recently acquired Ledo and Frikom overall. Big portfolio of great brands with great awareness and huge actually growth potential as we move forward.
I want to talk about the growth potential, but I also want to talk about some of the near-term challenges that you, like everyone else in the industry, have been facing. First and foremost, costs. Costs have been a big problem. In the U.S., most of the food companies have been hit with costs, are kind of over the hump right now. They're just rounding the corner where price net of cost has turned into a surplus, and we're all in gross margin recovery mode. It seems like Europe as a market overall is at least six, maybe 12 months behind. I don't know. Is that true for you? Is that a proper characterization? You know, what are you seeing on the cost backdrop?
Yeah, we have gone through a substantial inflation last year, starting actually end of 2021, and clearly ramping up at the speed of sound in 2022. When you look at the whole 2022 year point to point, January to December, we've been clearly experiencing about a 30% inflation on average. That has clearly required us to, frankly, adapt completely our approach to managing our own pricing development, our own pricing strategy to manage these elements that we are trying to compensate these cost impacts on our, let's say, input costs into effectively covering that through pricing, I would say, overall. What we are seeing now as we enter into 2023, and we are well entered into that, is definitely a moderation of that.
We are clearly moving into that territory of 30%+, that we ended up at the end of 2022 into clearly the mid-single, upper single-digit inflation. For some of the category, we're even starting to see a moderation and potentially even a decrease for those categories that have clearly gone overboard. The situation is looking definitely better. From a pricing standpoint, effectively, that has reduced the pressure as we move forward, and that leaves us much less pricing to do in order for us to compensate effectively that COGS pricing overall.
Is there more pricing to come? We're kind of the reset windows, price negotiation windows are primarily closed for the year, aren't they?
Yeah, I agree. I think given the trend we've been in, I mean, overall, last year we had three price increase. In Jan, March, we had another one, and now we are left with actually quite a small amount to cover for the rest of the year. The name of the game at this stage has been to be honest, to look and wait until we can effectively continue to take our input cost base down because we are not completely covered for the year, and we are trying to opportunistically take position on the market to effectively buy at lower price. If we reduce the inflation impact, we're using hence the price pressure so that we have over the half to take over.
Okay. Where you can be opportunistic. Geez, I think about your input costs. You buy vegetables, those are crop based once a year. Like, you got your pea crop, you negotiate pea, done. You're just no opportunity to be opportunistic there. Packaging costs, like, I suppose you can be a little less covered, but is this a fish situation we're talking about where you've held back and?
It could be fish. It could be other ingredients. Frankly, there are opportunities in the market. I mean, the reality with the hike in price, the demand in some of the, let's say, on the part of the portfolio that we are managing, I mean, sometime goes down. Therefore, some of the prices start to take, let's say, go back down. We are looking at effectively how to compensate the needs for the year, the pricing, if effectively the pricing goes down, and frankly, our capacity from a cash standpoint, whether we can afford or we can't afford, effectively, depending on the condition that we have. Effectively, fish is one, but there's a number of other elements in poultry and other elements on dairy that we can look at. Effectively, you're right.
We're trying to make sure that we are managing the position in terms of pricing, inventory, and clearly volume to be produced, I mean, over the year.
You mentioned you've priced vast majority are priced, but I don't think you've realized at all, right? You've taken list prices, you've done three rounds. First round, you took list price, full list price flows through. Second one, you taper with trade spend. You don't let's say you move up by 100, you only get an 80 index or so. Third one, I imagine there's even more tapering there. Of the list price that you've actually announced, how much is flowing through, and is there opportunity to taper, like, pull back on that trade spend as the year progresses?
What we've done is we've privileged, you're absolutely right in the way you're describing the phenomenon, because effectively there's always a piece of effective pricing up, a piece of let's say, incentivizing the retailer to really work with us on the execution of the pricing and the need for us to end up, hopefully, I mean, let's say price is at the discretion of the retailer, but hope we end up within the price range that's close to what we would like to see versus effectively what we hoped at the beginning. There's always a bit of a loss in translation overall. We've been playing more on the timing of the execution of that.
That's why we've always kind of communicated that over 2022 and 2023, we try to recover the totality of the pricing as opposed to go really sequentially spot pricing versus spot inflation. By spreading that over time, we get to a point where overall the intent will be from a growth margin development standpoint to recover from, let's say, the input cost inflation that we have, everything through pricing, and then use revenue growth management as an enhancing strategy.
Yeah.
In order for us to get more from the portfolio that we have.
That's to be caught up, the goal is to be caught up by the end of this year, correct?
Yeah, exactly.
Which implies, of course, that you won't be caught up through much of the year. You'll be there by the end, but if you succeed, you get some really nice wraparound benefits into the following year.
Yeah, absolutely. Absolutely, yeah.
Now, some of the concern that I've heard vocalized from investors following results, and I don't know why it came following results, because there's nothing really new or revealing in results, in my opinion, has been concern and consternation around what will private label do? Like you start to see what's coming off these really high costs and uh-oh, private label's gonna cut price, and now you're gonna have to chase it down. I've got a view, and it's not that view, but I don't want to bias you and lead a horse to water, so I'll let you. What's your view on that? How would you respond to investors who are proposing that situation?
It's, it's, if you go back onto our message, I mean, to investor and analyst, I mean, several months ago, even until the middle of last year, was that if you were expecting competition, whether it was branded or not branded, to clearly converge to all the type of increases we are taking. At the end of the day, we sell fish. We transform the fish, but the bulk of the price is really coming from one, two or three critical ingredients, same thing on pizza and so on and so forth. The reality is there's an economic reality that will trend people to price in line with what is the inflation is impacting us by.
The reality is that whilst branded goods more or less have taken price up more or less in line with what we have seen happening because their cost structure is probably similar to ours, private label and how discounters have not. Because of a competition that is inherent between retailers and how discounters around shoppers, I think there has been a point of, let's say, what's the right price not to lose shoppers at one end versus another. That has created a bit of a gap of about 10% that we have seen, particularly after the third pricing, starting to stay. We had hoped that this was going to reduce over time, and it has in all fairness. It has reduced to about, if you're 7% by now.
The impact on share is not yet visible, but it's an encouraging sign to see that effectively starting to go down. One of the conclusions we took out of the fact that this period has been taking quite long is that we were not going to look at the situation, frankly, arms crossed and looking at our share continuing to erode over time. We have put in place plans to actually step up our promotion, if you want, in terms of price reduction, broader on very specific country category combination in some given markets. As an example, if we have a fish finger product, which we believe is the leading SKU in one given market, whereby there would be an opportunity to potentially be deeper from a promotion standpoint, we would then potentially invest behind promoting that product.
The question is not about increasing the number of promotion, it's about effectively going after very specific targeted products.
Sure.
Really go after intervening in order for us to clearly make sure that we would stop that leak in terms of share. Gradually, hopefully, the market would rebalance around pricing, and then we would go back to more conventional level for the promotion.
Yeah, there's nothing new there. This is.
Yeah.
The same type of conversation we were having in February.
Yeah.
When you gave your initial guidance. It was all around this, you know, you had budgeted, I believe, for.
Yeah.
Well, some money, like a slush fund to be able to dip into for this, these purposes. let's play it forward. Fish costs come down. I'm making this up. Fish costs come down. more likely that private label cuts price, or more likely that this is the opportunity for retailers and private label manufacturers to recover their margin.
Well, I think if I kind of really talk about them, I mean, on that one I would say given how much they have lost from a profitability standpoint by not pricing.
Yeah.
It w ould not be unlikely that they would probably potentially wait before taking, let's say, wait before reflecting that price impact on shelves. They would probably absorb that in terms of beefing up their profitability over time until effectively the situation stabilize, and then after, they would potentially taking some pricing action at this stage.
Yeah.
The whole idea that if effectively some of the input costs would go back down, it would primarily become a promotional game more than like your least price game from that perspective. Whether they would take price down at the same time, I don't know. I have to say that is questionable given the fact that they've taken a lot on their profitability and their margin during that period of time.
Yeah. Yeah. Yeah. It feels like they're just trying to sort of weather the storm and ride it out to better days and accept some lower margins. It'll be interesting to see how it plays out. Okay, then sticking on the, it's not quite topic of cost, but I guess suppose it is. Where do we stand on fish supply? Remind those on, online or on the line or in the room, you used to get a large portion of your, of your fish from Russia.
Yeah.
What is that ratio today, and how have you diversified?
We have undertaken, a year ago, effectively during the beginning of, in February, during the start, I mean, at the start of the Russian-Ukraine war, I mean, there has been a lot of concern about the fact that if you want, the Russian fish was representing a large proportion of our, let's say, supply base. We don't have any business in Russia, just to be very specific. The reality is that we were buying really more than 50% of our fish overall, if you want, from Russia, I mean, overall. We had a number of projects already that had identified the opportunity to decrease our exposure to either category of product or market or species. That situation exacerbated the imperative for us to accelerate some of these projects.
One of them being farm fish, which we have been able to develop in a record time, in about almost six, seven months, have been able to start, if you want, a new supply of pangasius, which we call in the U.K., basa, is the kind of branding name, I mean, over there, which is a white fish, let's say white meat fish, very similar to Alaska pollock. We run testing in terms of, let's say, whether consumer would notice a significant difference and so on. Actually, the consumer testing have been proven to be very effective overall in a way that people have reacted very positively, I mean, to the fish. Now we are expanding basa, and we started in U.K., in France, in Germany, and planning effectively to go across the region as we go forward.
That is going, by the end of this year, is going to represent about 10% of our total fish consumption. At the same time, we've as well expanded the portfolio to new species. We had those species in the portfolio, but really took them to different ways, which is particularly hake as an example, which is highly consumed in Italy, but we've tested it as well in other markets. At the same time, frankly, we are trying to expand as well a different type of, let's say, optionality that we have from a fishing, from a fish standpoint between filet and mince. That overall has opened up the spectrum to reducing overall the exposure of Russian fish. Completely in line with what we stated.
We stated that by 2025, we would half our exposure to Russia, as we move forward, we are exactly, let's say, bang on track, I mean, on that one. Pangasius starting to really deliver some good results. The beauty with pangasius is because it is farm fish and with the label of the Aquaculture Stewardship Counci l, the ASC, which is very important for us because the fish really has to grow in certain conditions, well controlled, to give the reassurance to our consumer that this is really high-quality fish. The beauty of that technology, of that approach, is that we can scale up quite quickly, not to, let's say, necessarily doubling it very quickly, but we can scale up in case there were a need, I mean, from that perspective.
The whole diversification on fish now is really ramping up very well, and the portfolio is much more balanced as we look forward between cod, between pollock, between hake, between pangasius, between wild caught and farm fish and across the region as well when you think about Russia, U.S., South Africa, and other parts of the world as well. I can see how this makes tremendous amount of sense in terms of de-risking your supply chain.
Exactly. Exactly.
Making it more durable. What does it do to your cost structure?
In the short term, if you want everything else, let's say, being equal, it's actually about breaking even, if you want, overall. With effectively now the inflation becoming effectively much smaller overall, and even in some of the species, particularly on product, we see the market starting to go back down. Overall, we should get some benefit at some point in time. That's why one of the reasons why we did not want to go from one side to another and just say, "Stop pollock," and we just go full basa. We wanted to clearly get the opportunity of having a portfolio of species whereby we would still take benefits from the product, which is very sensitive to the catch.
On the other side, effectively basa, which is more structured because of the production facility, the investment, the capital and so on. Longer term, medium term, I would say it will have a positive impact, definitely, in terms of cost, and cost should go down overall.
It will or the market will? 'Cause pollock's going down.
Yeah, the pollock.
You then end up with a competitive disadvantage.
No, not really, because at the end of the day, it depends, frankly, on how you market these fishes. I mean, the basa is effectively farm fish. It says it will be a different price than pollock. Pollock is on a different price than cod and so on. Each and every of the white meat are not just white meat. They are clearly, we are trying to manage the interchangeability of the different products. Overall, if you want, we will have some species that will be clearly subject to market condition like pollock. Some others that will be more driven by more of a manufacturing process and input and output as well.
Okay. Okay. Let's talk about productivity. You've recently centralized a number of global business services. What was the timeframe? How far along are you? What does this unlock?
First and foremost, we have started the project, as I had mentioned. I would say a few times ago, we are in the process of centralizing all of the transactional activities within the company to really create scale and really build the scale of standardization and simplification as well. I mean, we clearly need, the market is now calling for a requirement for better decision, faster decision, and higher quality of data, and the ability as well to predict better. For that, what we have found is effectively that centralizing all of the transactional activities, whether they were F&A, whether they were receivable or payables, was really something that is important.
To be fair, today, we had shared service in different markets, but simply on different clusters, but simply not big enough to frankly leverage the scale that we wanted. We have undertaken this project, starting actually the rollout now. We're only rolling out one market, starting with the U.K. as we speak, U.K. and Ireland, and we're gonna continue the rollout until 2024, end of 2024. By end of 2024, we would have centralized, if you want, all of the finance transaction activities and some of the procurement activities as well, demand planning and S&OP, sorry, and a few other sales and operation planning and a few other activities.
After that, once that is in full operation with the new infrastructure of SAP S/4HANA that we will be putting in place, which will allow a lot of the, if you're interfacing of information, we will be able to move to a next stage, which will effectively be more, simulation, prediction, and consolidation of all the data that has not been in the system, particularly supply chain insights and HR as well. Okay. Benefits to your point, which is when do we see the benefit? Benefit are already showing up now, but in a small level, at a small level, continue to go into 2024 as well. It's gonna restart to kick off by 2025 big time because this is really when you're gonna have the full infrastructure in there.
I mean, it sounds like it's almost a hurt in the near term. You're standing up capability, global centralized capability, but you're not winding down the local country capabilities.
It's a transition element. It's, I would call it like an investment. Like in an investment, at some point, you have to frankly manage the transition. I mean, we have a EUR 3 billion business to manage. We have to make sure that that transition is really managed in the right way. As really we phase out an activity in one market, you have to phase in the activity in the centralized location.
Sure.
At that point in time, there's always a bit of an overlap.
Yeah
I mean, during that moment. That overlap is absolutely planned. Anybody, any one company that have done, let's say, a service center has gone through that, and it's called lift and shift. That you're lifting, and then once it's in the new location, then you're shifting, and after that, you implement the new systems in place. There is definitely an investment over 2023, 2024 in particular that will translate it into a long range of benefits. Not only cost, but unlocking revenues as well.
Yeah, yeah. Yeah, the incremental data capabilities, the predictive capabilities, the modeling stuff you talked about.
Exactly.
In the near term, there's redundancies. Can you size that prize? Like how much are the redundant costs and how much could fall away?
Yeah, I mean, we can. I mean, I think at that decision, maybe we can handle that. I mean, we can give you effective role of the detail. I think the whole project is delivering very good return overall. I mean, great NPV. There will be some impact, if you want, from an exceptional cost, which we had already experienced, I mean, in the first quarter of this year, and which will continue over 2023, 2024. After, the benefit will start in 2025.
Okay. Okay. Let's pivot to revenue and growth. You made a big acquisition last year. You've made a number of acquisitions. I think it was five acquisitions?
Yeah.
Far, every single one, I believe, has exceeded your expectations.
Yeah.
Congratulations. That's awesome.
Thank you.
It seems like from the outside looking in, one of the reasons that the Fortenova acquisition exceeded expectations 'cause you got lucky with some weather. You bought an ice cream business ahead of a just a phenomenal summer and a great selling season that was coming out of COVID. Is that an unfair characterization? How do you comp the comp as you looked a lot at this year?
I don't believe in luck. I think I believe in hard work. I mean, on that one, I think, yes, the context has been definitely positive, but I think in terms of weather and in terms of bringing tourism back in the region. More importantly, I think we bought right at the right time, and we set up an integration strategy with a team that is absolutely exceptional to frankly put this business on a growth path much faster than planned. Last year, we had the stars and the moon align on the, on the ice cream business, but clearly we had everything playing in our favor.
Still, there were a number of, let's say, elements where clearly we could have done better, and we could have done better in the area of distribution by effectively accelerating the change, the rollout of the change of the freezer that we have, which we have started. Production was under tension. There was supply chain, I mean, capacity issues, which we have fixed in the meantime. On the comp to comp, we'd expect this year that at equal weather and at equal, if you want, travel and tourism condition, there's definitely upside. Even with less, there would still be upside if you open the business. We are very, very pleased on the category, and we've been playing on the different vector, which is distribution on the one hand, more freezer, newer. The second point was supply chain.
Clearly, we have been preparing ourself for a surge of demand, so the customer service clearly would not be affected, so we would not miss any case. Equally important, innovation. This is a category where we have been bringing a fair amount of innovation, more innovation to come. I mean, just to be for the statement, which I think is important for us, last year, they've launched an innovation on King, which is called, if you want, cheesecake on a stick, and that has earned the best ice cream in the world, I mean, contest, I mean, last year. They have a lot of innovation of that magnitude, I mean, to come. Really a very encouraging business and frankly, we're counting on them to contribute to the growth of Nomad Foods overall.
Sounds pretty good. Sounds delicious. Probably cost prohibitive to bring it over to sample. I guess I'm gonna have to make the trip to go try this.
Exactly. You're more than welcome.
Okay. That's organically how you're gonna drive growth out of that. You also have some incremental activities, and you talked about last quarter, taking the product and exporting it to Austria.
Yes.
When does that start?
It's happening now. I would say the Ledo brand is in Austrian supermarkets, you have the full lineup of the brands, and it's starting and it's doing well, I would say, so far. Pleased with that. I think we don't intend to frankly take the brand broader than that at this stage because we need to find the right consumer base, the right equation between the brand history and the brand character and the consumer group that we will be targeting. Also is a perfect opportunity out there, the local business is really delighted to have the brand on shelf in-store. If you are in Vienna, frankly, I would encourage you to have a look at that. It's a great start, actually.
Well, we'll have to tack that on to the trip. Are there other markets where you see the opportunity to take the product to?
At this stage, to be honest, the Western world, I mean, at this stage, would be extremely costly for the timing, and we have other priorities. Definitely there were other export opportunity, why not? For the timing with the footprint that we have, it's primary play that is within the regional world.
Okay. Let's turn it around. You bought a business that has route to market infrastructure in a number of new countries that you didn't reach before, and you got a lot of other products that you're selling on the western side of the continent. Can you bring those in?
Absolutely. That is clearly under consideration at this stage. It's a matter, to be honest. What has made our success has been focus. I think the turnaround and the DNA of this business is this whole concept of, let's say, must win battles and really focus on the core, focus on what's really important. As we bring in those categories, which we have identified in fish and veg and in other sectors, we just need to make sure that effectively they are the market condition that will be setting future success for these clearly imports and inclusion in the overall portfolio.
Sure.
I think definitely everything is ready. There will be more to come, I mean, from that perspective. Clearly we are on track to actually accelerate the synergies, what I would call the reverse synergies, to come and support the business and increase the portfolio in the region for sure.
Okay. Some precedent of you doing this mean taking success in one category and replicating it as someplace else is in pizza.
Yep.
Particularly in France, right? Where last year, I believe you had, or earlier this year, maybe, good success in Carrefour. Is that right?
Yes.
It was exclusive with that retailer. It sounds like I think I heard you say you're now going to other retailers.
Yeah.
How much appetite is there from the other retailers?
Huge. Huge, actually, because, you know, the reality is that the Buitoni situation has left effective void in the market and a need to come up with other proposals from a retailer standpoint. Carrefour has been very positive overall on the opportunities that we have been bringing to them. Other French retailers now have re-raised their hand to take it. Let's not forget, we have not been even yet advertising the brand. We got big names now, Frank, in the pool. We will have by roughly end of Q2, about 50% of the French retail that will be covered with Goodfella's Pizza.
Wow.
The intent after in half two would be to start a more conventional advertising campaign to support the consumption. The brand has found its space where it's being there, and we're getting very positive reaction from retailers and consumers.
That's great. That's great. now that brand outside of U.K., and it's a U.K. and Ireland, Irish brand, right?
Yeah.
Are there any other markets where you're taking. You're playing in Portugal, is that right?
We have an Iglo Pizza business. I mean, over there, we have a Findus Pizza business in Italy as well, quite marginal. Definitely, I think, we want to, with the French development, we really want to better understand the dynamic of what could be the right business model that we could then replicate in other markets. There are definitely other markets in the region where we believe we have our own space. Yes, there are other large scale players that are very strong in the market, but there are some niche opportunity where we believe that this context of effective Goodfella's concept that is all around this kind of Italian-based, let's say, brand name that is coming from the U.K., I mean, or in Ireland more specifically, I mean, could have its space in the rest of Europe.
Clearly, again, on a targeted, very well thought through approach in order for us to maintain that must win battle spirit.
Mm-hmm.
Allocate resources where it matters.
Okay. Now the French opportunity emerged because of a recall with Nestlé—
Yeah.
The brand. I imagine they wanna get that business back. I mean, what are you seeing on the competitive front in that market?
No, at least for the time being, Frank, I think the situation is very difficult, to be honest, because the brand name has been substantially hurt by what we understand. There is a space for it for the time. Will they come back or not with the structure that they have now established with PAI? We don't know. For the time being, frankly, we have an opportunity to seize, an opportunity to frankly be present and to offer the consumers a high quality product, frankly, that is very safe from a nutrition standpoint that we believe that will be here to stay. I think if they come back, we'll be now in the market and clearly ready to defend our share.
The Nestlé PAI deal is interesting. We've all been waiting for Nestlé to maybe get out of frozen and frozen foods in Europe. They seem to have been very stubborn in moving it. This looks like a step towards that. I mean, it's effectively a divestment of their frozen pizza business. It's just a spin merge into a new JV. How do you think that changes the competitive landscape? How do you, both from an organic walking, talking on the ground, but also from an M&A perspective, I mean, you've been able to get some really good deals on the market because you've arguably been one of the few buyers. My whole intro, like, hey, we're looking in neglected areas where there's buyers. Like, that can create opportunity for the person who can look beyond it.
Do you look at this entity as, oh, crap, another potential consolidator in the market that you're gonna have to compete with for assets?
No, I think at this very stage, Frank, for me, it's just a matter of looking at the redistribution of the forces in the market. I mean, I'm not gonna comment on the deal itself. It is what it is. For us, we continue to be the most attractive consolidator in the market. When we consolidate, we integrate well, we develop the business, whether it's Findus, Switzerland, whether it's Goodfella's, whether it's Aunt Bessie's and so on, and we are viewed that way. The question, Frank, on a business like that is whether they will be changing the future or not. At this very stage, Frank, we focus with what we have in our hands.
There definitely are deals ahead that could be of interest, and that's part of the overall capital allocation approach that we have between, in fact, M&A and other opportunities that we have. Definitely that's something that we continue to look at as an opportunity at some point in time, depending on, frankly, what PAI and Nestlé decide to do in the future, for sure.
Sure. As you think about priorities between buyback or M&A, what is the priority for you right now? Or de-leverage. Let's put that on the table too. High rates, like paying down debt, all of a sudden the returns on that look a lot more attractive than these do.
We're guided, to be fair, we're guided really by value creation. Fact of the matter today is that the buyback is definitely an opportunity that we're contemplating, and we've been contemplating, and we've been commenting on that one. We have cash, and that cash can be deployed one way or the other, really guided by what makes the most sense. At this very stage, effective probably buyback ranks high on the priorities, definitely.
A lot of contemplation. When are you going to stop contemplating and get to action? Get to work.
Well, wait. Wait a moment, because I have to say Q1 was different, because Q1 was a moment where we had to focus, frankly, on finishing up a number of, let's say, very important activities relating to getting the business on track to frankly get on a growth path. We had some choices to be made from a working capital standpoint. We clearly had swings as well from cash between Q1 and Q2. Now that this is under the belt, we had a very good quarter in Q1. Now we have all of the ammunition, frankly, to execute the strategy, and you will see more to come, I mean, at some point in time.
Okay. It's not a contemplation. You're done contemplating. You finished contemplating a while ago. It's just like, we gotta get the working capital and make sure—
Yeah
The supply chain's in a good spot. Get supply chain in a good spot, make sure you're comfortable working cap at which. Because that's an opportunity, right?
Yeah
Use of cash. At some point, you should be able to, I would imagine, pull some of that cash back out.
Yeah. Yeah.
Is that gonna unfold as the year progresses, or you think you're gonna have to stay at this level for a while longer?
level of what? Level of.
Working capital investment.
No, no. I think On the working capital we definitely will have to do better. I mean, the plan is to deliver the 95% free cash flow productivity by the end of the year, which really will require, frankly, the fact of improving substantially our working capital position at the end of March on all fronts.
Mm-hmm.
Whether it's inventory, receivable, payables, and that 95% is clear and grain. We have plans to get there, and it is gonna take a bit of time, but we're gonna get there, definitely. With that in mind, there are opportunities, as I said, we're gonna be looking at and frankly, buying back is high on our list this year.
Okay. You pay no dividend right now.
Not yet.
Which kinda contrast with mature CPG companies. You've been delivering great growth, but you just said the word not yet, so that suggests you might be contemplating something.
Yeah
Is there a future where you may be paying a dividend payer, and what are the criteria? Like, what are the benchmarks you have to hit, criteria you've gotta hit to get to that point where you'd be willing to start paying a dividend?
Yeah. It's, I mean, to be fair, the first thing is that that's part of the option that we have in terms of capital allocation. That's a board decision. Overall, it is in the list of opportunities. This year, probably not. Next year, definitely that is a more serious opportunity between deleveraging with the high interest rate that we have, it is an opportunity as well for us in terms of delivering the right return for the shareholder. Buyback, M&A, and a dividend. At that very same, we just need to make sure that we prioritize right. It is fair to say that the vast majority of the FMCG firms do have a steady dividend policy, and we would like to frankly join the club at some point and do execute a fixed dividend that is here to stay.
Mm-hmm.
That's something probably that we will be discussing heavily in the next strategic plan that we have. More to come on the topic.
Okay. Any questions from the audience? We're bumping up against the time. I see no questions, I'm gonna ask an open-ended question, a little more vague to finish us off. You talk a lot of investors. What do you think is the most misunderstood part of your story amongst the investment community?
I think at this stage, I don't think people appreciate probably the fact that today versus six months ago, we have been building substantial level of dry powder in the second half of the year, particularly when it comes to NP. We have been in a situation with a lot of very valid reasons under-investing behind our brands. We are now substantially beefing up our investment, starting mid Q2 and in the end of the year. I do think people view that more as filling up the bucket until you get to marketing sufficiency of the brand. Frankly, for us, it's gonna be a clear opportunity to drive again awareness after having spent a lot of time on pricing. Now that we have that in place, we should restart the approach of reigniting growth.
Mm-hmm
Reigniting penetration, consumer demand, that would then have the impact on share and volume. The share and volume being the outcome. The prime focus will be how do we leverage the asset that we have by properly investing and getting returns that propel us into an acceleration of growth momentum getting into the next year. I think that part, yet, is to be seen and people just are probably waiting until it happens.
I think people aren't waiting to see the spend. I think they're waiting to see the reaction of that spend, and whether or not you get that lift that you're talking about.
Exactly.
If you do, we're all gonna high five. I'm gonna fly out and we're gonna go cruise the Adriatic region.
Exactly
Have a couple of beers to celebrate, and have a jolly old time.
Exactly.
All right. On that note, that's the back half of the year for me. Thank you for your time. Thank you for all of you who showed up in the audience. Samy, pleasure as always.