Nomad Foods Ltd (NOMD) 2017 Q4 法說會逐字稿

Good day, and welcome to the Nomad Food Fourth Quarter and Full Year 2017 Earnings Conference Call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Taposh Bari, Head of Investor Relations.

Please go ahead, sir.

Great.

Thank you, and thank you for joining us to review our fourth quarter 2017 earnings results.

With me on the call today are Stéfan Descheemaeker, our CEO; and Jason Ashton, our interim CFO.

Before we begin, I would like to draw your attention to the disclaimer here on Slide 2 of our presentation.

This conference call may make forward-looking statements that are based on our view of the company's prospects 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 does include cautionary language.

We'll 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 IFRS results.

Users can find the IFRS to non-IFRS reconciliations within our earnings release and also in the appendices at the end of the slide presentation that is available on our website.

Finally, please note that certain financial information within this presentation represents adjusted figures for both 2016 and 2017.

And that all adjusted figures have been adjusted for exceptional items, restructuring and transaction-related items.

And that all comments from hereon will refer to those adjusted figures.

And with that, I will hand the call over to Stéfan.

Thank you, Taposh, and thank you, everybody, for joining us on the call today.

2017 was an outstanding year for our company, highlighted by organic revenue growth of 4%, 100 basis points of gross margin expansion and EUR 237 million of adjusted free cash flow.

These results, which exceeded the guidance that we set at the start of the year, reflect the strength of our iconic brands, relentless execution throughout the organization as well as our strategy.

We ended the year on a high note with fourth quarter organic revenue growth of 5.6%, gross margin expansion of 350 basis points and adjusted EBITDA growth of 31%.

Importantly, Q4 marked the fourth consecutive quarter of positive organic revenue growth and market share expansion for our company.

Fourth quarter organic revenue growth was in line with the previous expectations that we recently provided in January when we announced the acquisition of Goodfella's but ahead of our initial guidance of 3% back in November.

Upside versus the initial 3% outlook was driven by a combination of 2 factors.

First, we experienced better-than-expected growth in December, where the category accelerated to 4% and the U.K. and Germany performed at a very high level.

And second, we have some shipments moving to December out of January in Germany due to the timing of some promotions versus a year ago.

In Q4, we gained 0.2 percentage points of market share against low single-digit category growth, resulting in approximately 3.5% share of growth for our branded business.

So 2017 was a pivotal year for Nomad Foods.

In only our second full year as a public company, we achieved a number of our goals, which I'd like to spend a moment reviewing with you.

First, we returned to -- the business to sustainable growth trajectory, driven by market share gains and broad-based growth across most of our 13 geographies.

As the market leader, we helped drive the frozen food category, which grew approximately 2% for both the year and the fourth quarter.

We successfully navigated currency-driven inflation in U.K. through a series of pricing actions, which helped to drive 100 basis points of gross margin expansion for the year at the total company level.

We fortified our core portfolio known to many of you as Must Win Battles.

Sales of our core grew 8% for the year thanks to a series of strategic investments behind products, packaging and in-store execution.

We unleashed the power of our iconic Findus, Iglo and Birds Eye brands through increase media support, which we self-funded through cost savings as our net A&P spend was up only 1% when excluding the effects of ForEx.

We attracted new customers while driving brand health scores, greater share of velocity and growth in base volume.

We further developed our capabilities (inaudible) management and supply chain, which both contributed to improve gross margin in 2017 and will play an important role in helping us drive M&A synergies and achieve a long-term target of 20% adjusted EBITDA margins.

And finally, we actively managed our balance sheet by lowering our borrowing cost below 3%, fixing nearly 2/3 of interest rate exposure and extend our debt maturities until 2024.

We've set a number of important milestones in 2017 but are still very early in our multiyear journey of building a best-in-class food company.

Turning to 2018.

We will build on our momentum by continuing to focus on our goal while also mobilizing our innovation pipeline and playing an even greater role in driving frozen food category growth through increased focus and efforts around corporate social responsibility.

We will complement strength in our legacy business with M&A once we close the Goodfella's Pizza acquisition.

As you know, Goodfella's represent our first acquisition in 2 years and opens the door into an attractive frozen pizza category, which is the second-largest European savory frozen category after seafood, where we already enjoy #1 market share rank.

Upon closing the transaction, our first priority will be to integrate these market-leading brands into our U.K. and [Ireland probations].

As we've said, this business is expected to be immediately accretive to earnings and contribute between EUR 22 million and EUR 25 million of annual interest and EBITDA within 2 years of closing or by the first half of 2020.

We plan to deliver another year of consolidated top and bottom line growth in 2018.

Importantly, the shape of this shared P&L will be balanced and reflective of the algorithm that we believe Nomad Foods can deliver sustainably over a multiyear period.

In 2018, we expect to deliver low single-digit organic revenue growth against a stronger year (inaudible) revenue base.

With the bonus wins (inaudible) with knowing the base, we expect EBITDA margin expansion to be greater this year versus last.

Finally, we expect to incur fewer nonrecurring cash charge that we expensed in 2017, even after the integration of Goodfella's.

Our initial 2018 guidance goes for adjusted EBITDA of approximately EUR 350 million to EUR 360 million and adjusted EPS in the range of EUR 1.08 to EUR 1.13 per share.

These figures include the expected benefit of Goodfella's.

This implies adjusted EBITDA growth in the high single-digits range and EPS growth of 10% at their respective midpoints.

2018 is off to a strong start with Q1 organic revenue growth expected to increase approximately 2%.

This is despite a more modest category backdrop during the month of January and the shipments phasing I mentioned at the start of this call.

This performance is strongly within our low single-digit guidance for the year.

And importantly, value-based our ability to sustain market share gains over multiyear periods as we lap strong comparisons.

And next, we're on pace to deliver another year of growth with good visibility into Q1, our seasonally largest quarter of the year.

As most of you are aware, Samy Zekhout will join Nomad Foods as our permanent CFO next month, making this Jason's final call as interim CFO since taking over the role 7 months ago.

And I would like to, once again, personally thank Jason for his significant contribution to our performance as well as excellent leadership throughout this transition.

And with that, I will hand the call to Jason to review our fourth quarter and full year results in more detail as [well as] our full year guidance -- to 2018 guidance.

Thank you, Stéfan, and thank you all for joining us on the call today.

Fourth quarter reported revenue increased 4.7% with organic revenue growth up 5.6%.

Organic revenue growth was driven by volume and mix growth of 3% and pricing growth of 2.6%.

Reported revenue growth was offset by approximately 90 basis points of FX translation.

Slide 4 illustrates the quarterly progression of our organic revenue growth, showing positive momentum throughout 2017.

As Stéfan mentioned, we expect another year of organic revenue growth in 2018 with Q1 expected to be up approximately 2% in line with our full year guidance of low single-digit growth.

On Slide 5, we show fourth quarter organic revenue trends across our 3 largest markets -- the U.K., Italy and Germany -- as well as the remaining countries in our portfolio.

There are a few callouts on this slide, beginning with the U.K., which delivered a strong 9% growth rate in Q4, reflecting solid execution within the core favorable category growth and price increases.

Germany posted another quarter of impressive growth, up 16% in Q4, with a few percentage points of growth benefiting from a shift into December after January.

After adjusting for this as well as some distribution gains from favorable year-ago comps, Germany's underlying growth remains among the strongest across the group and reflective of the team's impressive execution against a mature and competitive market.

Turning to Slide 6. Q4 gross margins expanded 350 basis points to 31.5% with mix, price and promotions and cost of goods favorability contributing factors.

Price and promotion, which contributed to 170 basis points of gross margin expansion, was primarily driven by net revenue management initiatives.

Cost of goods favorability, which helped gross margins 130 basis points, was driven by the anniversary of operational issues in Sweden and an improved harvest versus Q4 of 2016.

On Slide 7, I will review our operating performance during the fourth quarter.

I will skip revenue and gross profit commentary, which I just discussed in detail.

Operating expenses increased 2% year-over-year with more normalized indirect expenses and a more seasonally balanced A&P saving, creating offsets versus one another.

Within operating expenses, A&P declined 7% and indirect increased 8% year-on-year.

As we previously discussed, we reinstated bonuses in 2017 versus no bonus payment in 2016.

This was a source of indirect growth during the fourth quarter.

Resulting adjusted EBITDA was EUR 82 million, representing 16% of revenues.

Adjusted EBITDA increased 31% year-over-year.

Depreciation and amortization of EUR 10 million declined to last year due to the closure of our factory in Sweden.

Adjusted net financing costs were EUR 14 million, down 25% year-on-year, reflecting improved cost of capital following the successful refinancing of our debt in early May and a partial benefit from the debt reprice in December.

The effective tax rate was 23%, in line with previous quarters.

Adjusted EPS was EUR 0.27 for the quarter, an increase of 108%.

This was due to 93% growth in adjusted profit and a 9% year-on-year reduction in our adjusted average share count.

This excludes the Founder Preferred Dividend for this quarter, given that it was issued on January 2 subsequent to the quarter-end.

Turning to Slide 9, which outlines our P&L performance for the full year 2017.

For the full year, we realized organic revenue growth of 3.9%, which was offset by 1.9% from foreign exchange translation and 0.5% from the anniversary of a leap year, resulting in reported revenue growth of 1.5%.

Gross profits grew 5% in euros, equivalent to 100 basis points of gross margin expansion.

Gross margin for the full year was driven by a combination of mix and price and promotions, which were partly offset by cost of goods inflation.

Operating expenses increased 6%, driven by a 9% increase in indirects due to the reinstatement of bonuses.

A&P declined 1% on a reported basis but increased 1%, excluding currency translation.

2017 adjusted EBITDA increased 1% to EUR 328 million.

Growth would have been 13% when excluding the reinstatement of bonuses, foreign currency translation and the anniversary of the leap year.

Full year adjusted diluted EPS increased 19% to EUR 1 per share, driven by EBITDA growth, lower depreciation and amortization, lower financing costs, and a lower share count.

Turning to cash flow on Slide 10 for the year.

We realized EUR 237 million of adjusted free cash flow in 2017, ahead of our initial expectations set at the start of the year.

The key drivers of free cash flow, aside from EBITDA, included working capital, which showed an inflow of EUR 33 million.

This was partly driven by the absence of cash bonus payments in 2017 versus the prior year.

Adjusted CapEx is EUR 38 million or 2% of revenues.

This excludes EUR 4 million of nonrecurring Findus integration costs.

Adjusted tax paid was EUR 38 million, reflecting 17% of our adjusted pretax income for the year.

This excludes EUR 39 million of payments related to the previously discussed settlement of onetime legacy tax matters.

Adjusted net interest and other finance costs were EUR 49 million, reflecting the refinancing and repricing actions we undertook to strengthen our balance sheet throughout 2017.

For the year, operating cash flow conversion of 99% exceeded our long-term target of 90%.

Partially offsetting adjusted free cash flow for the year were restructuring and nonrecurring cash flows of EUR 100 million for the year, which were in line with our expectations and driven largely by severance costs associated with the closure of production facilities in Sweden and further integration of the Findus group, where we are rolling out the Nomad ERP system.

Turning to Slide 11, on our initial 2018 guidance, which is based on foreign exchange rates as of March 20, 2018, and inclusive of expected partial year contribution from Goodfella's, which we expect to close in Q2.

We expect organic revenue growth at the low single-digit percentage range, which assumes moderate category growth and continued market share expansion.

Given the strength of the euro versus local currencies, such as the pound sterling, Swedish krona and Norwegian krone.

We expect foreign currency translation to offset organic revenue growth by approximately 60 basis points for the year and 90 basis points for the first quarter.

We expect 2018 adjusted EBITDA to be approximately EUR 350 million to EUR 360 million, representing year-over-year growth in the high single-digits range.

Our guidance assumes another year of gross margin expansion for our legacy business, which we expect to be offset by approximately 100 basis points of mix from Goodfella's on an annualized basis due to its lower gross margin profile versus our legacy business.

In summary, for our legacy business, we expect the following: organic revenue growth in the low single-digits range; gross margin expansion driven by net revenue management and supply chain; and a modest growth in operating expenses.

Incremental to the performance of our legacy business will be a partial year revenue contribution of approximately EUR 90 million and EBITDA of approximately EUR 10 million from the pending acquisition of Goodfella's.

Goodfella's has a lower gross margin and, to a lesser extent, 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.

For the full year 2018, we expect adjusted EPS to be approximately EUR 1.08 to EUR 1.13, which assumes a current share count of approximately 176 million and is, therefore, before any impact of potential future share repurchases or founder share dividends.

That concludes our remarks.

I will turn the session over to Q&A.

Thank you.

Operator, back to you.

(Operator Instructions) Our first question today comes from Steve Strycula of UBS.

Two quick questions for me.

The first would be a point of clarification on the EBITDA guidance.

I just want to make sure I heard it right.

For the Goodfella's, was that EUR 10 million contribution for this year?

Or will that be on a full annualized run rate into the 8 months that you guys are going to have in the books this year?

The EUR 10 million is for the transitional year as we close (inaudible) in Q2.

So in other words, it's not a full year.

It's not a full year.

Okay, got you.

And then as it relates to organic sales, I know, Stéfan, you called out that there was a little bit of a -- or sell-in shipment benefit in the fourth quarter from Germany.

And you guided for this first quarter to be roughly 2%, but there was a shift.

So x the shift, is that right around 3%?

That would be my question.

And then can you give us a little bit of color commentary as to why the U.K. did so well in the quarter?

And then conversely, speak to the slowdown that we saw in Italy.

Okay.

So let me step back for a second on the Q1, the 2%.

Overall, we really believe it's a really great outcome.

You have to think that, obviously, it's on the back of the stock market.

So in other words, we're gaining market share.

So it's pretty much the same kind of trajectory as Q4.

The only difference is obviously in on Q4, the industry was much higher for a variety of reasons, one of them being, obviously, the shift in Germany.

Then let's say, back to the shift in Germany, you just have to think that at the end of the day, the 2% is a correct number, including both the phasing and obviously Easter impact.

I think one offsets the other, to make it simple.

And the 2%, back to our bonus is very much in line with the algorithm we have.

Then if you go to the U.K., it's very interesting because, indeed, it's really -- when you see the trajectory, Steve, you see that it started with Italy and Germany.

And Germany is still in some sort of emerging-market trajectory at this stage.

And U.K. took a bit more time.

And you remember, we said, yes, there's a reason for this.

One is we had the level of the ratio, the proportion of core categories divided by the total business is lower.

And so the impact is very high per core category, but obviously, on a global basis, it takes more time.

So that's one thing.

And second, we have, for a variety of reasons, obviously the pound being one, is that we have to digest very -- and Jason explained this, we had to digest quite -- a series of price increase, which by definition takes a bit more time in terms of volume and value expansion.

But overall, it's a great situation.

And when you see behind the numbers, and that's very important, you see in -- (inaudible) in U.K. is the brand equity is doing well in the 3 countries, so the 3 countries, obviously, the growth engines for the whole organization.

And we're very pleased to see that the U.K. is now joining the other 2. Did that answer your question, Steve?

Yes, that was helpful.

And can you comment on Italy, in terms of like the slowdown there a little bit?

I know you guys have had really strong comps there for a while, but I'll pass along after that.

Yes, but let's say, Italy, the categories are such, especially in January and it's coming back now, January 1, so the category was declining so was in negative territory.

One thing that hasn't changed is we keep -- obviously, over time, is we keep getting market share.

So it's doing well.

So at the beginning of the year, the quarter was a bit difficult, and now, we're getting back on track, very pleased.

We will now take a question from Brian Holland of Consumer Edge Research.

First question, I guess, following up on Steve's with respect to the guidance and he probed Q1.

But as I look to the balance of the year, Q1 is obviously your easiest comp, if you will.

As we go through the year, they get progressively more challenging.

So if you could just -- whatever the highlights you'd like to point to where we can think about whether that's innovation, whether that's distribution gains, as we move through the balance of the year, that's going to allow you to comp progressively or sequentially tougher numbers and still hit that low single-digit organic growth?

Thanks, Brian.

Indeed, it's obviously -- the whole story in 2018 is obviously growth-on-growth, that's very simple.

And we're starting indeed with the 20 -- with the Q1.

When you think about it, it's really -- it's focused behind the core business, behind the core categories on a country-by-country basis is exactly what we've been doing in 2017.

And we're not going to deviate.

I can tell you, we have -- one of the success -- one of the reasons of the success is it's some sort of, let's say, obsessive, very, very, disciplined implementation by the whole organization.

The thing we're going to do now is that we're going to evolve -- improve obviously the strategy behind obviously net revenue management and moving to the next step, making sure that all those countries are moving to the next step.

You remember also that the first piece of the trajectory we're really focused behind renovation, though we're starting to move back to innovation, big bets behind key categories and behind key trends.

And the frozen food category works well with the key trends.

So -- and that's going to come, obviously, in Q2, Q3, Q4.

So this is the kind of programs we're going to activate further in the second part of the year but, obviously, starting already in Q2.

So yes, it's to your point, it's obviously the comps are getting obviously more demanding, which is the name of the game.

And -- but we look forward to making it work.

That's helpful.

If I move down to the EBITDA guidance that you provided for the year, I guess if you back out Goodfella's, you're kind of implying something close at the midpoint to about 5% EBITDA growth.

Clearly, in hindsight, guiding a little bit conservatively on '17 served you well.

And I think it makes sense to guide appropriately -- use appropriate conservatism as you guide going forward, but I'm just asking, within the context of that mid-single-digit EBITDA growth because if I think about '16 to '17, you obviously reinstated the bonus scheme in '17, so that was a drag.

And so if we just back out Goodfella's, is there anything else kind of important that would -- because I think you still have a lot of low-hanging fruit to attack here, whether that's the last of the Findus synergies, whether that's your net worth management initiatives, revenue management, et cetera.

Is there anything in '18 that would weigh on the margin on an organic basis that we should be thinking of, that would maybe be mid-single-digit organic instead of high single digits?

No.

I think you're right.

But let's say, let me again pause and come back to what we said 1 month ago -- less than 1 month ago in CAGNY.

We said the model in frozen food, which is a great category, the model for us to consolidate the frozen food industry in Europe is very simple.

It's starting with the low single-digits organic revenue growth, which is backed -- which is based on something like 1%-plus natural trajectory of the category as such plus market share increase.

So that's one piece.

And from there, obviously, we're going to make enough provision leverage work, and that should lead us to the mid-single-digits EBITDA growth.

And then obviously, on top of that, is the things like, for example, obviously, starting in 2019, obviously, when (inaudible) synergy are going to start to kick in, things like Goodfella's should improve the whole thing.

But that said, let's say the algorithm, which is low single-digits growth, organic revenue growth translated into something like a mid-single-digits organic revenue growth, I think it's -- that is nothing conservative.

It's just pragmatic and practical and realistic.

And again, back to our guidance, as we said, off to a good start but also very early in the year.

And last one from me.

Forgive me if you addressed this in your prepared remarks and I missed it, but is there any guidance for '18 free cash flow generation and then the expense of which restructuring and nonrecurring winds down, if there's a way to think about that?

Yes, sure.

So as you can see, we didn't give free cash flow guidance.

And I guess, just stepping back, our guidance practice is evolving to conform without [pairs], so you can see that, for the first time, we are guiding to EPS.

That said, we are expecting another strong year of free cash flow in 2018 with parameters that are very consistent with what we saw in 2017, starting with the goal of -- our strategic goal of free cash flow conversion of 90%.

And also, as you pointed out, we're expecting a meaningful decline in nonrecurring cash charges in 2018.

And we're expecting in the region of EUR 65 million of nonrecurring costs, which includes integration from Goodfella's and remaining Findus integration costs.

Does that answer your question, Brian?

Yes, it's helpful.

We'll now take a question from Bill Chappell of SunTrust.

Just wanted to follow up on Goodfella's and kind of the commentary.

Do you expect both on the gross margin and EBITDA margin to get closer to company averages as we move this year?

Or is that really more of a '19?

And then longer term, is it to believe -- I think you said the gross margins were below but EBITDA margins weren't that different.

Is it a thought that the pizza category, and Goodfella's in particular, can be higher than corporate average?

Or do you need to spend more money back in kind of marketing and advertising to kind of keep it going?

So first of all, Goodfella's has a lower gross margin profile, as we said in the remarks.

Goodfella's is a strong brand but has had a high level of promotional intensity over the last 2 years.

And we very much believe applying the Iglo -- the Nomad growth model and investments in media, that we can drive gross margins more to the legacy business, and it's, in fact, what we did in the U.K. with the margin profile there.

It's also fair to say there is a percentage of our business which is a very efficient private label business, which has a lower gross margin profile and lower SG&A.

So the difference that EBITDA is much lower than the legacy business because of the lower SG&A costs.

So it's a fraction of the EBITDA margin than it is of gross margin.

But back to your point, we're going to do exactly what we did with the rest of the business.

We're going to apply off-label.

We're going to reinvest behind the brands.

And then obviously, then we'll be in the position to clear really the net revenue management program that we have in place based obviously on the stronger brand.

That's the playbook we played, I think, quite successfully in the -- in all countries.

And we believe that Goodfella's has what it takes to make -- to go that same way.

But I guess, the last playbook took us about 3 years.

I assume that this is more of a 12 months' type playbook?

So we said 2 years, starting from closing.

2 years.

Yes, 2 years.

So the first part is reinvestment, which is normal.

And the second part is really the preparation is obviously net revenue management and gross margin expansion, though obviously, we first need to make sure that the brand is strong enough, and that's what we're doing, but it's not 3 years, it's 2 years.

Okay.

And then just in terms of commodity outlook, as we start the year and kind of where you stand and what type of headwind or tailwind that plays into your numbers.

At this stage, we are reasonably confident.

We mean, overall, in terms of commodities, we're reasonably confident, absolutely.

We don't see -- obviously, there are some headwinds, tailwinds, but overall, it's a -- we have a pretty good view of where we stand.

So nothing on fish and vegetables that we should worry about at this point?

No.

No.

It's part of a program.

That's our job.

We will now come to a question from Rob Dickerson of Deutsche Bank.

So back to the free cash flow for the year.

I know what you said.

You're not giving official guidance.

But at the same time, there's a meaningful decline in restructuring costs.

I know you had that legacy tax cash contribution this year, the refi, right.

And kind of part of the larger story is that had been the ability for that cash flow to kind of uptick in '18.

So while I understand there may be some upper investment requirements in Goodfella's and also just curious '19 could there be other events such that you would allocate incremental cash, you have excess cash to not only just M&A but the potential share repurchase activity as we saw in '18?

Let me just -- you're right.

We did that with Goodfella's.

I think we also can improve our supply chain, so that's one thing.

And then in terms of, obviously -- we've proven in 2017 that we are doing the right things in terms of value creation, can be a share repurchase.

That's fine.

And at the same time, we're also contemplating -- we're considering the different options to improve our footprint M&A-wise.

So it's going to be, as usual, these are the right balance between both.

We've proven in 2017 that we can do it, and we're going to -- obviously, we're going to be very mindful of the value of shareholder value creation between both share repurchase, of obviously M&A.

Okay, great.

And then in terms of Goodfella's, I think everyone who follows the company understands that frozen pizza is an incremental category for you.

There seems to be this good opportunity for you to improve the overall profitability of the business with revenue management and incremental upfront investments.

But just kind of more generally, do you see this very clear path to share opportunity?

And let's just say, just in the U.K. and Ireland because you don't see innovation coming from competition or I think you've spoken before about these larger frozen pizza companies in Western Europe to maybe not -- haven't allocated the right amount of attention or capital, A&P, what have you to the category.

So I guess, first, is assuming you can deploy your revenue management capability and skills you built up over all the years, there's this other part that you really think leads this great opportunity in share gain and then also category growth kind of in line with what you're seeing in the rest of your portfolio?

That's it.

I can pass it on.

Let me start with the last part of your question.

Pizza actually is growing even faster than the rest of frozen food.

So that's pretty good.

So it's obviously a very good category from that standpoint.

Back to your first part of the question.

I would think -- I would summarize by saying one thing.

We are today, we are frozen food -- we are frozen foods.

And we definitely believe that this company is going to be better served, I mean, Goodfella's being part of Nomad Foods because we live and we think in terms of frozen food.

And then on top of that, Goodfella's is going to obviously -- to be leveraged -- further leveraged with, obviously, the footprint of Birds Eye.

So the combination is really great.

And that's the kind of thing that you need to have in mind.

On top of this are things like net revenue management and the rest of it.

So think of, number one, it's a great category that is growing faster than the others, that's one thing.

Second, where let's say Goodfella's was part of a larger organization and not necessarily strategic.

And core, definitely it's core for us.

That's the second piece.

The third piece is, now it's going to benefit of the larger infrastructure of Birds Eye.

And number four, yes, we have demonstrated, though, in the last 2 years with programs like net revenue management and brand building that we can, obviously, -- I mean, accelerate to the top line.

I think that these are the core -- the key things that you have to keep in mind when you think about Goodfella's and the rest of the organization.

Our next question today comes from Adam Mizrahi of Berenberg.

Quick question.

Firstly, what's causing the delay in expected closing date for the Goodfella's acquisition?

Okay, it's very simple.

Number one, it's a carve-out.

So as usual, with a carve-out, it's obviously a bit more complex.

In the meantime, the business is doing pretty well.

So for us, it doesn't make any difference.

We're actively working with the sellers to make sure that the carve-out is going to be fine and as we go into the original to oversee a good company.

So nothing to worry about, to make it simple.

Both teams are very working very hard to finish that carve-out.

Great.

And then you've talked already about Germany and Italy performance at the start of 2018.

But I'd be interested to hear how you see the drivers of gross margin expansion differing this year relative to last year as that geographic mix tailwind to gross margin from growth of these 2 countries eases in 2018.

Yes.

As you quite rightly said, parts of the shareholder value algorithm is gross margin expansion, and we expect gross margin expansion in 2018.

But below 2017, and as you know, in 2017, mix with a big tailwind, so we have the 3 legacy Iglo markets growing very strongly and the activation of the Must Win Battles.

And that growth will not be as strong in 2018 as we normalize to low single digits.

Okay.

And then, if I can finish with a more thematic question.

Are there any improvements you can make to your own business to accelerate top line growth beyond low single digits?

Or do you see that level of growth as conditional to the across-the-board improvement in the underlying savory frozen foods market?

When you think about the current algorithm to your point, Adam, if you're starting from a low single-digit revenue growth starting from 1%-plus category as such, there is obviously so much you can do.

There is a lot you can do in terms of market share improvement in terms of mix, but overall, long term, yes, definitely, we believe that there is something more that we can do with the category.

But as I said, and we haven't changed our message starting with CAGNY and even before, that's the kind of thing that's going take a bit more time because you will have to change the consumer perception, but that's our job.

So you can imagine that, so far, that's exactly our algorithm.

And at some stage, with the brand developments, with the category development, and by CSR, and we're going to spend quite some -- we're going to invest behind these things.

We're going to be serious about it.

And it's not going to be serious.

But for 1 quarter or 2 quarters, once we decide to do this, to improve the perception of a category, you have to do that seriously quarter after quarter after quarter.

And -- but definitely, we believe that, over time, it's going to really help the category to move to a higher level.

And then actually, then we will talk at it, Adam.

We will talk.

But at this stage, it's low single-digits organic revenue growth.

And if we do the job correctly in the future, nothing is excluded.

Ladies and gentlemen, we have time for one more question.

That question will come from Jon Tanwanteng of CJS Securities.

How should we think of Goodfella's from a strategic viewpoint?

It sounds like it only has modest synergies of the existing seafood business?

Should we expect it to be the only -- the first step of a bigger push into the pizza category either on an organic or inorganic basis?

Just your thoughts on that.

(inaudible) that way.

First, when you think about Goodfella's, the first thing in a pragmatic way that you have to make it work.

It's a very strong #2 player in the U.K., a strong #1 player in Ireland.

And we're going to improve that part of the equation.

That's the first thing we have in mind.

And that's the bottom of the business plan.

Then, obviously, and you have obviously have noticed, as we mentioned that, overall in Europe, it's a very interesting category.

It's the #2 category after seafood.

And so we're going to learn.

We're going to learn a lot.

I think there is a natural proximity between pizza and the other frozen categories, like seafood, like vegetable.

And then we will examine other things.

But the first thing is obviously let's make it work.

Let's learn a lot.

And then obviously -- and there's a natural progression that will build that way.

Okay, great.

And just a broader M&A question.

While you are closing Goodfella's, have you paused looking at other acquisitions?

And if you haven't, what does the landscape look out there from a valuation number of opportunities standpoint?

Yes.

The answer is we haven't paused, and the second part of the answer is, obviously, we're not going to mention what it is by definition.

But it's very much in line with our criteria and obviously combined with our role as category leader.

Got it.

Would you view something in pizza more attractive relatively at this point or something more in your core seafood categories?

Everything is core, right.

Let's say, frozen food is core.

That will conclude today's question-and-answer session.

I would now like to turn the call back to Mr. Stéfan Descheemaeker for any additional or closing remarks.

Thank you, operator.

Yes, we're very pleased to have delivered, as I said, a stellar year of performance in 2017, capped by a very strong fourth quarter.

We're growing our top and bottom line with a focus on profitability and cash flow and look forward to building on our strong foundation with another year of growth in 2018.

We're off to a strong start in Q1 and look forward to updating you on our progress on our next call in May.

This concludes today's call.

Thank you for your participation.

You may now disconnect.