Nomad Foods bets on A&P thrust to halt streak of volume declines in 2024

Europe’s largest frozen foods supplier does expect more muted organic growth as price effect fades.

Simon Harvey March 01 2024

Nomad Foods anticipates annual volumes will return to positive territory this year for the first time since 2020, boosted by stepped-up A&P spending.

As volume/mix recovers from the 9.5% decline registered in the 2023 financial year, the gross margin improvement is also expected to accelerate on the back of last year’s 50 basis-point rise to a meagre 2%.

However, Europe’s largest frozen foods manufacturer, with brands such as Findus and Aunt Bessie's, guided to a more muted performance for organic growth as inflation and pricing starts to subside.

“We expect to see the gradual improvement turning to positive volume growth by the second half of the year,” CEO Stefan Descheemaeker told analysts yesterday (29 February) as he presented the results and the 2024 outlook.

“It's going to be steady, but it's not going to be linear.”

Publicly-listed Nomad Foods has posted negative growth in its volume/mix each year since the positive 7.2% print in 2020. In 2021, it turned to minus 1.6% and the drop worsened to 5.9% the following year, then quickened in 2023.

While volume/mix was down 5.6% in the fourth quarter, based on pricing of 7.5%, Nomad Foods’ CFO Samy Zekhout said signs of an improvement are already emerging as the UK-headquartered company focuses A&P resources behind its top 20 frozen food brands.

“Volume trends are already beginning to inflect to positive growth in many of our key markets. We expect continued sequential improvements in the first half and consolidated volume to turn positive in the second half,” Zekhout said.

“We expect our gross margin trends to continue to improve in 2024 as we benefit from improving volumes, a greater focus on productivity initiatives and favourable costs.”

The gross margin increased 160 basis points in the final quarter ended 31 December to 3% as profit in value terms rose 8% to €208m ($224.6m).

Looking into the year, reported revenue climbed 6% to €3.05bn. Organic growth was 4.9%, with pricing up 14.4%.

Gross profit increased 5% to €859m and adjusted EBITDA went up 2% to €535m. Adjusted earnings per share fell 2% to €1.61 and were down 21% on a reported basis at €1.13.

Organic growth for the new year is expected at 3-4%, down a touch at the top end from the 2023 print, while adjusted EBITDA is likely to accelerate to a 4% to 6% range, meaning €556m to €567m in value terms.

Adjusted EPS is expected in a range of €1.75 to €1.80.

“The retail environment remains dynamic but we have successfully completed pricing conversations in the majority of our markets and we remain on track to complete the rest over the next few months,” Descheemaeker said.

“Our volume/mix declines improved sequentially from the last quarter and moderated to the lowest levels since the third quarter of 2022.”

Zekhout predicted that input-cost inflation is likely to be “relatively flat” for 2024 as a whole “with lower fish and protein costs offset by headwinds in some other cost buckets, including vegetables”.

The CFO added: “Our 3% to 4% organic growth in 2024 is expected to be relatively balanced between price and volume/mix, including positive volume growth for the full year.”

Nomad Foods boosted A&P spending last year by almost 13%, and an “even greater increase” is planned for 2024, Zekhout said, “particularly in the first half as we drive strong volume and share performance”.

A&P outlays were even greater in the fourth quarter, rising almost 30%.

Descheemaeker said a “disproportionately large share of these investments were made against our top 20 ‘must win battles’, adding that “these high-priority opportunities account for nearly half of our retail sales and an even bigger share of our gross profit”.

The CEO continued: “Along with driving the core, higher A&P will also help reignite our innovation engine. Historically, new products have accounted for nearly 5% of our annual sales and it fell below that level in 2023.

“We are committed to regaining our innovation momentum and have an exciting pipeline of new products to be launched through the rest of the year.”

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