Nomad Foods Ltd (NOMD) 2015 Q3 法說會逐字稿

Hello and welcome to today's Nomad Foods earnings conference call Q3 2015 update. (Operator Instructions). Just to remind you, this session is being recorded. Today, I am pleased to present Stefan Descheemaeker, CEO and Paul Kenyon, CFO. Paul, over to you.

Thank you, operator and good morning/good afternoon, everybody. Before we start, I just wanted to draw your attention to the disclaimer on page 1. I don't propose to read through it, but do draw your attention to it and with that, I will turn you over to Stefan. Stefan.

Thank you, Paul and good morning, everyone and thank you for joining us. Before turning to the earnings presentation, we wanted to update you on a few topics as there has been a lot going on. We closed our first transaction as Nomad Foods. We completed a successful debt offering and we are actively working to implement our long-term value creation strategies while simultaneously looking to further expand the business by acquisitions.

It's really an exciting time for us right now and I will start with the Findus transaction. As previously announced, we are pleased to report that we completed the acquisition of Findus Group's Continental European business on November 2. The acquired business had approximately EUR619 million in sales in fiscal year 2015, generating EBITDA of approximately EUR71 million, primarily in Sweden, Norway and France.

Through this transaction, we believe we have strengthened our pan-European leadership position by unifying the Findus brand in key markets and diversified our geographic and product portfolio. We will discuss some specifics in a few minutes, but I want to highlight a few points.

First, the underlying Findus business is performing well. Net sales for the 12 months ended September 2015 were EUR619 million, an increase of 3.6% versus the prior year at constant currency. This growth was driven by modest growth in existing markets and the year-on-year impact of the La Cocinera and Lutosa acquisitions. France was the standout performer where sales are up approximately 6% versus the prior year. In addition, we have a significant growth opportunity in Spain as we look to build on the La Cocinera acquisition.

Second, since the time we announced the transaction in mid-August, we had the opportunity to spend more time in our new markets and validate our business case assumptions. As a result, we've become even more excited about the value creation potential and believe the transaction is more accretive than previously indicated. This is driven primarily from synergies, which we now expect to be between EUR35 million and EUR40 million, but that addition is from taxes where we expect an overall blended statutory tax rate closer to -- to be 23% versus earlier guidance of 25%. Lastly, while it is too early to quantify, we are optimistic about the commercial opportunities as we seek to build upon the best of both legacy businesses to build a better Nomad.

Third, a mid-stage challenging and uncertain credit market will receive substantial support from our credit partners. Both long-term partners and we were happy to see interest from new investors as well. Our EUR285 million add-on facility was 2 times oversubscribed. We upsized modestly and closed the offering at EUR325 million, priced at EURIBOR plus 400 at 99, which is a great outcome. Excess proceeds, along with our existing and growing cash balances, position us incredibly well as we execute our business strategy.

Meanwhile, we continue to prudently manage our business, maintaining strong and attractive margins and free cash flow characteristics despite the macro environment, which speaks to the resilience of our business model and core belief of underlying cash flow generation.

To put some context to this, based on our business today, we expect to be in a position to generate approximately EUR200 million of cash flow next year. Ultimately, our long-term strategy success will be determined by our ability to execute in implementing our growth strategy. We believe that we have the right team with the right experience and expertise to improve upon an already stronger platform to build a truly best-in-class integrator.

As we have expected and previously discussed, the grocery retail environment has been extremely challenging driven by the (inaudible) situation across Europe and the consequent growth in the discount channel, which has forced heavy promotional activity resulting in continued pressure on our business. Q3 sales excluded from the newly acquired Findus business went down 8.4% overall with declines seen in the majority of our markets. However, there have been bright spots as we look at continued growth in online sales in certain markets such as the Netherlands and Portugal.

Meanwhile, we continue to prudently manage our business, maintaining strong and attractive margins and free cash flow characteristics despite a macro environment, which speaks to the resilience of our business model and quality of underlying cash flow generation. Without understating the relevance of the top-line decline, looking forward, it's important to understand that we are executing a plan to restore the quality of our sales and strengthen the business before returning it to growth.

Regarding our plan, we are shifting resources from innovation and new product development to renovation of our core existing products and flagship offerings to increase functionality, relevance and value to our consumers. We believe these efforts will best position our brands among consumers and against private-label competition while supporting an even healthier P&L in the future.

That said, we are not abandoning innovation as we look to continue to build upon the success of inspirations, whole grain and breakfast, among others, but we've shifted our internal priorities. Keep in mind that we remain incredibly relevant to our customers and consumers and we expect these efforts to further enhance our value proposition versus private label.

We are targeting the approximately EUR1 billion gap between our gross sales and net sales, understanding the opportunity that better revenue management creates for our business. By obtaining greater visibility into the effectiveness of (inaudible) spending, we can implement strategies to optimize our promotion spend and pricing architecture. We believe these efforts will better position our business against private label to stabilize our top line over the coming quarters and maintain margins.

We've made a number of management changes both on the executive leadership team and within the local markets. Following these changes, we believe we have the right team in place to quickly and effectively implement our vision. While our margins are already best-in-class, we believe there is still opportunity to better manage costs and we are working to identify savings to reinvest behind our core brands.

We've initiated a rigorous review of cost base alongside the Findus acquisition as part of next year's budgeting process. Lastly, we continue to review the other components of our growth model as we seek a better balance between the operational efficiencies of global management against the more granular approach of managing the business through our local markets.

As a whole, the frozen category remains stable. The market has grown 0.6% year-to-date with continued resilience. Also, and this is nothing new, there are a number of underlying trends looking to health and wellness, quality, convenience, limited waste for both the consumer and the retailer, among others, all supporting long-term category health.

However, within the category, as we've discussed, we are working to balance the dynamics between branded and private label. Our key objective is to reverse the negative top-line trends. We know we are making the right decisions and we believe the work we are doing now will position us and the category well for years to come. This just takes time.

We are more encouraged than ever about the amount and scale of opportunity to grow our business via acquisitions. Following the acquisition of Findus, we've cemented ourselves as the market leader across Europe, which positions us extremely well to consolidate the frozen food sector in Europe with an equally strong position to prudently and strategically expand our presence in adjacent and new categories. The US remains a strategic priority for us and we are actively evaluating opportunities to enter the market. It's fundamentally a matter of identifying the right platform.

With that overview, I will now hand you over to Paul who will take you through the financial performance in the quarter.

Thank you, Stefan. Good morning/good afternoon, everyone. Before turning to the presentation, please note that the financial statements represent pro forma as adjusted figures, which are adjusted to reflect the combination of both Nomad Foods Limited and the standalone Iglo Group business during the comparable periods. All of my comments from here on will refer to those pro forma as adjusted numbers and for the sake of clarity do not include any results from the recently acquired Findus business.

As we look at slide 6, we list the key factors behind our performance in Q3. Net revenue was down 8.4% year-on-year in the quarter allowing for currency impacts and the exit from Romania, Slovakia and Turkey. The like-for-like decline was 11.2%. The sales performance was impacted by a continuation of the tough grocery retail environment across our three major markets, namely the UK, Germany and Italy seen in previous quarters as consumers continued to exhibit value-seeking behavior. Italy accounted for half of the net sales decline as the prolonged relationship issues with our major customers continue to have a significant impact on the business.

As part of our efforts to turn around the Italian business, we have appointed new senior leadership in that market and while it will take time to rebuild relationships with the Italian trade and reposition our portfolio for growth, we are confident that we now have the right team in place.

Gross margin declined by 3.3 percentage points driven by higher levels of promotional investment year-on-year as we sought to remain relevant to value-seeking consumers coupled with the impact of lower volume recoveries. A&P investment was EUR2.2 million lower year-on-year as we continue to realize the benefits of the move to a single global media buying deal. Year-to-date, gross rating points are broadly flat year-on-year. So the weight of advertising in front of consumers' eyes was maintained. Indirect costs were EUR8.7 million lower year-on-year due to lower bonus accruals. Q3 2015 pro forma as adjusted EBITDA was EUR63.6 million, which was 13.6% down year-on-year driven by the impact of lower sales. Despite a challenging quarter, we maintained EBITDA margins of 20.2%, which is consistent with our strategic targets. EPS declined EUR0.05 year-on-year due to an increase in share issuance of 14.9 million shares and a decrease in profit of EUR5.4 million.

In terms of third-quarter product highlights, the recently launched whole grain platform continued to perform well across Continental Europe with sales now at EUR10 million on a year-to-date basis while in Italy the Dolce Buongiorno breakfast platform continued to increase household penetration and repeat rate with year-to-date sales now at EUR3 million.

While the overall sales environment has been tough, some markets continue to perform well and we call them out here. We are particularly encouraged by the continued progress in the online grocery business in the UK, which is our lead market for online business development.

Turning to the year-to-date performance, net revenue was down 4.3% year-on-year for the nine months to the end of September. Allowing for currency impacts, the exit from Romania, Slovakia and Turkey and the impact of one less trading day year-on-year, the like-for-like decline was 6.9%. EBITDA for the nine months was EUR206.5 million, which was 5.3% down year-on-year, again driven by the impact of lower sales. However, the EBITDA margin at 19.5% remains in line with our strategic target of around 20%. EPS has declined EUR0.07 year-on-year due to an increase in share issuance of 5 million shares and a decrease in profit of EUR6.8 million.

Cash conversion remains strong at 88.2% of adjusted EBITDA with working capital remaining negative on average on a last 12 months' basis. Pro forma leverage was artificially low at 2.7 times due to the equity raise in July, ahead of the acquisition of Findus. Pro forma for the acquisition leverages 3.8 times based on September last 12 months' EBITDA and balance sheet.

Turning to slide 7, I will give a little color on the sales and margin performance. As a reminder, approximately 80% of our sales are concentrated in the UK, Germany and Italy, so I will focus my comments on those markets. The UK declined by 8.4% on a like-for-like basis in the quarter as consumer and customer trends continue to impact on the business. As was the case in the first half of the year, consumers continue to exhibit value-seeking behavior and as a consequence, the German discount chains continue to grow with Aldi up 17.3% and Lidl up 16% in the latest 12-week Kantar data. They now account for roughly 10% of the market.

Three out of the top four traditional retailers who account for around 70% of our UK business saw declines in sales in the same period. The big four remain highly focused on price resulting in higher levels of promotional investment in our UK business year-on-year as we seek to remain relevant to consumers.

Online remains an opportunity in the UK. Overall, online grocery grew by 12% in the last quarter and now accounts for 7% of grocery sales in the UK. Our business continues to perform ahead of market norms with 10% of our business going through retailers' online operations and we recorded growth of 13% in the quarter and 13% year-to-date. We remain optimistic about this channel and see the opportunity to increase our online presence in other markets such as France over time.

Germany declined by 10.9% in the quarter as the hard discounters continued to gain share through extending their ranges into other value products in the frozen category. The traditional retailers have responded by launching expanded private-label value-added ranges and while we have only seen modest declines in distribution, the shelves have inevitably become more crowded and our business has suffered as a result. For example, spinach declined 15% in the quarter and 7% year-to-date as private label expanded their spinach added-value offering.

Italy was the largest driver of the overall sales decline in the quarter with a drop of 17.5% year-on-year. Consumer confidence remains extremely fragile in Italy resulting in increased penetration levels for private label, which grew by 1.8% and discounters, which grew by 0.7%. The bulk of the decline came in parts of the portfolio such as natural fish and natural vegetables where the level of differentiation versus private label is relatively low. A further decline driver was the core portfolio where we decided to focus resources, including A&P, on supporting new product development ahead of the core.

The other strategic issue that we need to address in Italy is that of trade margin. While the trade made higher cash margins on our products due to our relatively higher price points, they make lower percentage margins and as they start to come under pressure from value-seeking consumers switching to discount channels, the current focus of the traditional retailers is on percentage margin. This has driven a significant dislocation with the trade this year restricting our access to key promotional slots on the largest productlines and in some cases limiting distribution as well. As I commented earlier, we have made new appointments to the senior management team who are already in place and working to drive a turnaround in the business.

Turning to the margin performance, there are two key drivers. Firstly, the impact of lower volume recoveries associated with the sales performance described just now and secondly, the incremental investment in trade promotions required to remain relevant to value-seeking consumers. I will provide further detail in the next couple of slides.

Moving on to slide 8, we analyzed the year-on-year sales movement in the quarter by key driver. We have benefited from the strong pound. Adjusting for the translation effects impact of our sterling sales in the UK, plus the exit from Romania, Slovakia and Turkey, gives a like-for-like sales comparator of EUR355.4 million. We have broken down the components of our sales to show the key drivers this quarter. The market was down by 1.5%, which impacted net sales by around EUR5.2 million. Retailer impact in total amounted to around EUR19.3 million, which is entirely due to the significant stepup in promotional investment required to respond to current consumer behavior, value-seeking and the traditional retailers' response to it.

The revenue management initiative that Stefan referred to earlier is specifically targeted at mitigating this impact. Portfolio impacts show a continued growth of EUR3.4 million in our priority product platforms, namely (inaudible) senses, whole grain, steamed fresh and breakfast. This is more than offset by the EUR18.3 million decline in the base portfolio, the majority of which is in Italy, as I commented earlier. The shift in focus back towards renovation of the core portfolio versus the recent focus on innovation in new occasions is targeted as mitigating this decline.

Moving on to slide 9, we analyzed the year-on-year gross profit movement in the quarter by key driver. As previously commented, the major drivers of absolute gross profit performance had a EUR10.8 million volume impact arising from the lower sales, the EUR14.4 million impact of increased trade promotions shown in the net pricing bar and the EUR5.2 million factory performance, which is affected by the cost recovery impact arising from the lower volumes and a slightly delayed spinach (inaudible). Mitigating those impacts or the positive translational impacts are a stronger sterling on our UK profits, positive mix as we continue to manage the portfolio towards higher-margin products and supply chain savings delivered by our procurement team.

On slide 10, we show the year-to-date results for the nine months to the end of September. The sales and margin drivers are essentially the same as those for the quarter, also for indirect costs, but it is probably worth noting that the significant reduction in advertising and promotion costs year-on-year is driven by two factors.

Firstly, the non-recurrence of one-time costs associated with the development and rollout of the better meals together strategy in the early part of 2014 and secondly, the impact of the move to a single global media buying deal with (inaudible) that has enabled us to maintain the level of gross rating points, broadly flat year-on-year. That is the weight of advertising in front of consumers' eyes whilst realizing a significant reduction in euros invested.

On slide 11, we show the cash flow performance for the nine months to the end of September. Aside from the EBITDA movement, working capital shows a similar position year-on-year with the outflow in both years being driven by the normal cash flows associated with the harvest of the seasonal vegetable crops, namely peas and spinach. Capital expenditure has phased a little earlier this year, but is not expected to be higher than last year on a full-year basis.

As I commented at our 2014 full-year results, taxes in 2014 were lower than normal due to tax credits arising in our Italian business. 2015 is representative of a normal year and in line with our expectations. The pro forma numbers strip out nonrecurring costs, but the relevant cash flows for year-to-date 2015 and 2014 would have been EUR28.3 million and EUR12.2 million respectively.

Cash conversion over the last 12 months has been in line with our strategic target at 88.2% while the comparative 2014 performance was unusually high due to a poor pea harvest. As I commented earlier, leverage was artificially low at 2.7 times due to the equity raise in July ahead of the acquisition of Findus. Pro forma for the acquisition, leverage would have been 3.8 times based on September figures, down from 4.3 times at September 30, 2014.

I will now hand you back to Stefan for an update on our strategy.

Thank you, Paul. Turning to slide 13, I will start by outlining how we are evolving the group's organic growth strategy. First and foremost, it is critical to respond to ongoing top-line pressures from discounters and private label across our markets. As we have stated, our goal to strengthen our core and then grow the top line. First, safe to reinvest through cost-cutting and disciplined cost management, we expect to fund investments behind top-line growth and become the lowest cost producer, which will position us increasingly well against other branded private-label competitors. Today, we are taking a rigorous look at our cost base alongside the integration of Findus. While we are not quite implementing zero-based budgeting, we do expect to adopt [certain] limits.

Second, innovation and renovation. I touched on this earlier. We look to make a fundamental change by relocating resources, representing approximately EUR130 million budget focused on renovation versus innovation. To put that into context, the makeup of the innovation pipeline value has evolved in the change in -- since the change in -- strategy started in mid-2015. NPV renovation ratio was 58.42%. Today, it is 47.53%. Let me be clear about the strategy. We have been too focused on expanding to new occasions and introducing new products. While we have had success, we need to refocus on our core offerings. For example, in 2016 in the UK, we plan best-ever renovation and the revised pack size and pricing strategy on fish fingers, (inaudible) and waffles. In Germany, we plan activation and renovation of Captain Iglo and spinach (inaudible), including gluten-free and vegan variants. And in Italy, renovation on fish fingers, (inaudible) and [sofacine]. Through this, we will continue to support our brands and justify our price premiums versus private label. Through renovation, we strengthen our core to protect sales with fewer, bigger innovations required to drive growth.

Third, we have recalibrated the balance between local and global to preserve the operational efficiencies arising from a centralized organization without sacrificing the granular approach to local management and execution at the customer and consumer level. After all, food is local.

Fourth, revenue and customer management. By obtaining greater visibility into the effectiveness of our trade spending, we can implement strategies to optimize our promotional spend and pricing architecture, which will underpin our sales performance and support maintenance of our margin levels.

Lastly, the frozen category supports consumer demand for fresh and better-for-you products. With continued consumer education, we expect these attributes to resonate with consumers and support long-term strength.

Looking then at our external growth plans, we will develop a best-in-class organization and structure for the future, thus driving -- creating the pathway to be a best-in-class integrator to lead consolidation. We will deliver swift and effective integration of new businesses to deliver synergies. Moreover, we will execute disciplined M&A to access additional value-creation opportunities and we will maintain prudent leverage levels.

I will now update you on our latest thinking regarding the Findus acquisition that we completed on November 2. On slide 15, we provide an overview of the acquired business. The transaction (inaudible) includes Findus Group's non-UK operations with approximately 85% of sales in the key markets of Norway, Sweden and France. The remaining 15% of sales are across Spain, Finland, Denmark and Belgium. Because these are 2014 numbers, Spain is underrepresented and following the La Cocinera acquisition now represents a good growth opportunity in a relatively unconsolidated market.

Adjusting 2014 for estimated La Cocinera sales would move Spain from being approximately 7% of Findus Group sales to 12%. Findus maintains strong position in its key markets, as well is in Finland and Spain. The transaction excludes Findus Group's UK business, Young's, as well as a UK private-label business.

In addition to the Findus brand, we are acquiring La Cocinera, a ready-meal business in Spain and Lutosa, a potato business in Belgium. Key product categories include fish, vegetables and ready-to-eat meals, which nicely complement our existing portfolio. The geographic breakdown is relatively concentrated, but provides meaningful diversification for the combined group due to the limited geographic overlap between the old Findus and the Iglo business -- in Belgium, where Iglo was the market leader and France where Findus was the market leader.

We also acquired six manufacturing facilities as part of the deal, making 10 in total across the combined business. I don't propose to go through slide 16 in detail, but it provides more detail on the strong market position and product category shares of the acquired businesses.

On slide 17, we lay out our strategic thinking and rationale behind the Findus transaction. As previously communicated, we have rigorous investment criteria and Findus was a perfect building block for our platform for a number of reasons. They are a market leader with strong brand names in the frozen food space with the added benefit of reuniting the Findus brand across most of Europe. In addition, Findus nicely fits with our existing footprint with minimal overlap across geographies and crucially brings a strong market position in those geographies.

Next, Findus had a product portfolio that was complementary to Nomad's core categories of fish, vegetables and meals to support future renovation and innovation of products. And lastly, Findus presented a great opportunity for synergistic cost savings across our business operations with further potential to drive top-line revenue growth with commercial synergies. In fact, as I mentioned before, we now expect to deliver even greater synergies than previously communicated. We are revising our previous targets of EUR25 million to EUR30 million of synergies over the three years to 2018 up to a new target of EUR35 million to EUR40 million over the same period.

On slide 18, we lay out the anticipated synergies showing where the additional EUR10 million of synergies are targeted to be achieved. The third-party [cleaning] room process has increased our level of confidence in procurement synergies while a more detailed understanding of the cost base has increased our level of confidence in indirect cost opportunities. The EUR10 million increase moves the synergy target from 4% of 2014 actual sales to 5.5%.

When considering our target versus benchmarks, it is important to remember that there was no head office acquired as part of the deal and there is a long history of private equity ownership and cash constraints, which means the organization has already been [leaned off]. In terms of synergies phasing over the three years to 2018, while we move quickly to implement the planned programs, the majority of these will be realized during 2017 and 2018.

Moving to slide 19, we provide a more detailed view of how the Findus acquisition will greatly strengthen Nomad Foods. We expect combined net sales to increase by approximately 43%, a significant increase in scale. Total combined adjusted EBITDA is expected to increase by approximately 36% to around EUR400 million plus synergies. In addition, our combined businesses will result in increased productivity and geographic diversification. For example, historically, 81% of Iglo Group sales were concentrated in its top three markets risk; whereas, going forward, six markets will account for 83% of all sales. We expect a broad product range and increased scale in Europe to bring about opportunities to roll out products from both of the legacy portfolios across our markets, leveraging Nomad's strength across its key geographies.

Lastly, following this acquisition, our total marketshare within the frozen food market in Western Europe is approximately 14%, around 2.5 times greater than our next largest competitor and encompassing strong market positions in 15 European countries.

Lastly, on slide 20, I think that's worth mentioning that we are just getting started. We currently have work to do to strengthen our business and restore core growth. That being said, it would be remiss to not discuss what is going well. We have a dominant European platform through consolidation across the fragmented food sector and the leader in European frozen food market with iconic brands. We have a strong balance sheet and a business, which generates a tremendous amount of free cash flow to drive value creation via M&A and deleveraging.

And finally, there is a talented and experienced management team with a long-term vision to build a global portfolio of best-in-class food companies and brands within the frozen category and across the broader food sector. We, and I think I am speaking for everyone at Nomad, remain incredibly excited about what the future has in store for us. And with that, I will turn the session over to Q&A. Operator, back to you.

Thank you. (Operator Instructions). [John Tomlin], CJS Securities.

Good morning. Thank you for taking my questions. The increase in promotional investments you saw in Q3, does that have an immediate return in the quarter or is that a benefit for next quarter?

So we record the promotional costs as incurred, so they would have been related to the third quarter. And we do a trial process at the end of each quarter.

Okay, got it. And from a longer-term perspective, can you return to growth in the current consumer environment or do you need to see the benefit of a stronger macro backdrop?

I think we need to do both, but we need to do both at the same time. We first need to reinforce our core, so that's why you have seen that we are fundamentally shifting resources from pure innovation to core innovations like fish fingers, like in natural veg and all these things and at the same time, we also need, obviously, to be smarter with the promotions. So that comes together and it's going to take a bit of time, obviously, but these are the right things to do. So are we going to go back to growth? Yes, we think so. It is going to take time because we can't cut commerce.

Okay, great. And can you also talk about the environment for M&A? Are you focusing more on Europe or on the US and have you seen valuations run away at all? Do you think financing will get more difficult in the future? Any color on that would be appreciated.

I would say we have a holistic approach in Europe and the US, so we are really working on three fronts that would be that way. One is obviously to restore fundamentals. That's one thing. Second is to work very hard on integration to do two things, by the way. One is obviously to deliver the synergies, but also to really become a best-in-class integrator, which then leads to the third point, which is M&A in terms of dealmaking. And so from that standpoint, we are working on both US and Europe, frozen food, but also (inaudible) food.

Okay, thanks. And finally, any update on the progress of the New York Stock Exchange listing?

Yes, we are working on that. We chose to prioritize closing the Findus deal more rapidly because we felt it was good to get a hold of that, but we are in good shape to list on the New York Stock Exchange right at the end of this year or early Q1 next year.

Great. Thank you.

Robert Dickerson, Consumer Edge Research.

Hi, this is David Mandel in for Robert Dickerson. I wanted to follow up quickly on promotional spend. Paul, I believe, spoke about increased promotional spend in order to be relevant to consumers. In the past and actually this release, you spoke about the gap between growth and net sales. Do you think that that opportunity still exists as the environment is more competitive and discounters continue to pick up share? If you could just comment quickly on that.

I think more than ever this (inaudible) is real. As we said, it's the biggest difference in terms of between two lines within our business and I am only talking here about Iglo. We haven't done exercise yet for Findus, so more than a $1 [billion] difference in our P&L. It's something we are working on. We are working on the three fronts in the UK in Germany and in Italy, but, at the same time, we need to do this together with obviously an approved offering in terms of core products. But the combination of the two together will deliver results more than ever. Yes.

And thinking about the business going forward, is there kind of a scenario where, similar to Kraft/Heinz or Heinz Europe segment where there is that sales pressure and volume pressure, we are seeing the double-digit sales decline, but also have that go forward, but in turn have double-digit increases in EBITDA? Is that kind of the goal or -- I don't know what you think about it?

There are some similarities and as we said, remember that I mentioned cost savings as absolutely a fundamental point of our strategy, not only on a standalone basis, but also with Findus. We said repeatedly that we want to become the lowest cost producer and becoming the lowest cost producer will help us obviously pricewise to compete with private label. At the same time, we also need to -- over time, we need to restore our top line. So top line is absolutely fundamental in our business. I'm not saying (inaudible) something that's spectacular, but at least we need to come back to positive territory. So we will address both at the same time and it comes together right away because cost savings will help us to invest in our top line. So that comes together.

Great. And my last question before I pass it along is, in terms of being able to compete with private label and being the lowest cost provider, how does that compare or reconcile with spending on innovation and do you guys simply need to become bigger because you will be the low -- to reduce costs and have more power with retailers to reduce trade? Is that kind of the goal?

These are obviously fundamental; they are very important points. You are right, David. At the same time, as we said, we need to -- we need to do two things. One is to be very relevant pricewise and as a result costwise. But at the same time, we also need to be more relevant than ever (inaudible) private label in terms of innovation. So we need to increase our gap in terms of quality and we need to obviously be very competitive pricewise. If we do both -- and it's a never-ending story, don't get me wrong -- it's not going to stop after one quarter. It is the story of food today. We need to do both to be relevant, so price and quality. But don't forget quality and innovation. That's absolutely fundamental.

Thank you.

(Operator Instructions). Jon Tanwanteng, CJS Securities.

Just a quick follow-up. Have you seen any incremental pressure heading into Q4 from the consumer, or is it more similar to Q3?

It is similar.

It is similar. Okay. And Paul, just a quick one. What should we expect to see in terms of exceptional items in Q4 with the closing of Findus?

We haven't published any guidance on that yet, Jon. Obviously, we will have not just the start of the synergy process, although I think to give some guidance on that, that will mainly be a 2016 event. We will also have the purchase price accounting as well. So we are still working through that, having only -- I think this is week three. So we are in good shape, happy with the progress so far but not able to give guidance at this point.

Okay. No worries. Thank you very much.

Okay, gentlemen, at this stage, there seems to be no further questions in the queue. So could I please pass it back to you to close up?

Okay. Thank you, operator. So as I said in terms of conclusion, we are going to work very hard on the three fronts. We know we can do this. Number one is to make sure that we restore fundamentals and from the fundamentals, obviously, to come back to positive territory in terms of sales. That's one thing. Together obviously with cost savings and reinvestment.

Second is integration. As Paul said, we are making very good progress. Started really day one and there is a great sense of urgency from both sides of the organization and from Findus and from Iglo and ultimately from Nomad. And the third one, obviously we are not losing attention in terms of M&A. There is a lot to be done in this industry. There is a lot of movement in the food industry and in Europe and the US is shifting, is moving significantly with a lot of opportunities that will come in the coming years -- coming months and coming years. With this, back to you, operator.

Thank you. It now remains for me to say this now concludes today's call. Thank you all very much for attending. You may now disconnect.