Nomad Foods‘ acquisition trail is heating up as the UK-based frozen food manufacturer seeks to build on what it calls its legacy business.
The Birds Eye owner climbed back on the M&A ladder in January for the first time in two years with the announcement that it had agreed to buy a string of pizza assets from the UK’s Boparan Holdings, including the Goodfella’s and San Marco brands.
It was back in 2015 when Nomad Foods, located in the UK but listed in the US, last made a foray into the market with the purchase of the Findus frozen food assets.
And while the Goodfella’s acquisition marked a divergence into a new but growing category to complement frozen food brands such as Birds Eye and Iglo, chief executive Stefan Descheemaeker made clear this week there are potentially more deals on the horizon.
On an earnings follow-up call with investors, the CEO said: ”We will complement strength in our legacy business with M&A once we close the Goodfella’s pizza acquisition,” which he expects to be completed in the second quarter.
He added: ”As you know, Goodfella’s represents our first acquisition in two years and opens the door into an attractive frozen pizza category, which is the second-largest European savoury frozen category after seafood, where we already enjoy the number one market share.”
Descheemaeker described 2017 as ”outstanding”, characterised by four consecutive quarters of organic sales growth, which rounded off the year at 3.9%.
Reported revenues grew 1.5% to EUR1.9bn (US$2.3bn) and adjusted EBITDA was up 1% at EUR328m. Nomad finished the year with net income of EUR137m, a more than three-fold increase from 2016.
And 2018 looks set to be even better, with adjusted EBITDA expected to increase to EUR350-360m, with a EUR10m contribution from Goodfella’s, albeit a slimmed down input given the timing of the deal. The pizza assets are expected to add EUR90m to group revenues.
Nomad forecast organic revenue growth in the ”low, single-digit” range for 2018.
However, Goodfella’s could be a drag on Nomad’s margin targets, meaning the company still needs to drive growth in its legacy businesses. Earlier in March, the firm said it was looking to secure its first listing in the US for the Findus brand.
Interim chief financial officer Jason Ashton, who has filled the role temporarily for seven months following the departure of Paul Kenyon, noted on the call that Goodfella’s has a lower gross margin, and, ”to a lesser extent a lower EBITDA margin as compared to the legacy business”.
“That said, improving the profitability profile of Goodfella’s is a fundamental driver of our integration strategy for this acquisition,” Ashton added.
Samy Zekhout is set to become the permanent CFO in April.
Nomad reiterated this week it aims to achieve a “long-term” margin target for adjusted EBITDA of 20%, which means realising a gain of more than three percentage points over 2017’s 16.8%.
Chief executive Descheemaeker said a priority this year will be to integrate the Goodfella’s brands into its operations in the UK and Ireland, and reiterated the acquisition is expected to be accretive to between EUR22m and EUR25m of annual adjusted EBITDA within two years of the closing of the deal, or by the first half of 2020.
Overall, the company predicts the increase in the EBITDA margin will be more this year than last, while actual growth in euros for that metric is seen in the ”high, single-digit range”.
In terms of strategy for this year, Descheemaeker added: “We will build on our momentum by continuing to focus on our core, while also mobilising our innovation pipeline and playing an even greater role in driving frozen food category growth through increased focus and effort around corporate social responsibility.”