Nomad Foods Ltd (NOMD) 2024 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Nomad Foods first quarter 2024 earnings conference call.

(Operator Instructions) Please note that this conference is being recorded.

I'd now like to turn the conference over to Amit Sharma.

Please go ahead sir.

Hello and welcome to Nomad Foods first quarter 2024 earnings call.

I'm Amit Sharma, Head of Investor Relations, and I'm joined on the call by Stéfan Descheemaeker, our CEO and Samy Zekhout, our CFO.

By now, everyone should have access to the earnings release for the period ended March 31, 2024.

That was published at approximately 6:45 AM Eastern Time.

Our press release and investor presentation are available on Nomad Foods website at www.nomadfoods.com. This call is being webcast, and a replay will be available on the company's website.

This conference call will include forward-looking statements that are based on our view of the Company's prospects, expectations, and intentions 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 in our investor presentation, which includes cautionary language.

We will 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 the IFRS results.

Investors can find the IFRS to non-IFRS reconciliation within our earnings release and in the appendices at the end of our slide presentation available on our website.

Please note that certain financial information within this presentation represents adjusted figures for 2023 and 2024.

All adjusted figures have been adjusted primarily for share-based payment expenses and related employee payroll taxes.

Non-operating M&A related costs, acquisition purchase price adjustments, exceptional items and foreign currency translation charges and gains.

Unless otherwise noted, comments from hereon will refer to those adjusted numbers.

With that, I will hand the call over to Stéfan

Thank you, Amit.

Would like to begin by offering a few highlights from our first quarter as we made a solid start to the year.

I will then offer a few comments on our accelerated growth outlook as we deploy our growth flywheel before handing it over to Samy for a detailed review of our quarterly financial results, and our 2024 outlook.

Nomad Foods delivered another quarter of solid top and bottom line performance.

First quarter net sales increased by 1.1%, including organic sales growth of 0.3%, our seventh consecutive quarter of positive organic sales growth.

Our volume trends improved substantially both sequentially and on a year-over-year basis, which is very encouraging given our clear focus on returning back to positive volume growth in 2024.

Our accelerating volume trends during the quarter validate the difficult choices we made over the past 18 to 24 months to protect the long-term health and growth potential for brands.

We made targeted investments during the quarter to further boost this recovery.

These investments are being fueled by favorable cost and our productivity agenda, which we believe will position us to deliver higher margins and strong profit growth through the rest of the year.

We paid our first quarterly cash dividend during the quarter and remain opportunistic buyers of our stock, supported by our strong cash generation.

I'm excited about building momentum as our initiatives to drive sustained profitable growth begin to take hold, and our volume recovery begins to accelerate.

As a result, we are reiterating our 2024 guidance, including net sales growth of 3% to 4% with positive volume and share growth.

Adjusted EBITDA growth of 4% to 6% and adjusted EPS in the range of EUR1.75 to EUR1.80, which implies 9% to 12% growth.

With that, let me provide a few highlights on our first quarter guided performance.

First quarter net sales increased by 1.1% as favorable ForEx complemented organic growth of 0.3%.

Quarterly volume declines moderated significantly from last quarter, accompanied with strong product and customer mix as we begin to deploy our revenue growth management toolkit across key markets and categories.

As expected, contribution from pricing moderated as we lapped strong year ago pricing actions.

First quarter gross margins declined by 200 basis points to 26.9% as the expected onetime margin headwind due to balance sheet inventory valuation more than offset higher underlying margins.

Samy will provide more details about the revaluation impact, but I'm pleased with the improving trajectory of our underlying margins, which is being driven by clear focus on lower cost, productivity, favorable mix, and optimize promotions.

Given our expectations of a more favorable cost environment ahead, we remain confident in delivering high gross margins for the full year, enabling us to continue to invest in our brands.

Adjusted EBITDA of EUR122 million and adjusted EPS of EUR0.37 per share, both declined from the year ago quarter.

We generated nearly EUR49 million of adjusted free cash flow in the first quarter, a significant improvement from EUR25 million in the year ago quarter.

As a retail sales level, as reported by NielsenIQ, our volume and share trajectory continues to show significant improvement and even turn positive in many of our key markets during the quarter, including UK and Austria.

This recovery is being driven by the full activation of our renewed and upgraded flywheel to bring consumers back to the frozen aisle and to drive greater engagement with our brands.

Winning with consumers, winning with our brands, and winning with customers are the key pillars of our flywheel, and we made the intended investment in the first quarter achievements.

Our A&P spending increased by more than 20% as we expanded our master brand campaign to additional markets to drive greater engagement with consumers and to remind them the most relevant and loved aspects of their relationship with our iconic brands.

We timed our Q1 pricing and promotional activities to maximize benefits from favorable seasonality and to align it with greater consumer interest in the frozen aisle.

At the same time, our ongoing investments in data analytics capabilities and people helped us execute better out shelf.

Enabled by our ongoing business transformation projects, our center of excellence are delivering deeper data-driven insights to our local markets to optimize the promotion spend, reallocating resource to the largest potential opportunities in winning additional merchandising events in stores.

Our comprehensive revenue growth management toolkit is enabling us to fine-tune our promotional frequencies and depth at a much more granular level.

We are customizing our strategies at country and category level to support our consumers and deliver attractive price points to bring them back to the frozen aisle into a brand.

As I discussed at the recent CAGNY presentation, a key driver of our anticipated volume recovery is our increasing focus on our best and biggest opportunities.

The top 25 of these must-win battles accounted for nearly two thirds of our sales and an even greater share of gross profit in the quarter.

As planned, these top must-win battles receives a disproportionately large share of our growth investments.

And as expected we delivered sales growth in gross margin, fine excess of overall business, including positive volume growth in 15 of the top 25 must-win battles.

Let me highlight a few of these success stories from the quarter.

First one is a strong rebound in our fish finger business in Italy.

After a difficult 2023, we deployed all elements of our growth flywheel to regain volume growth and drive greater penetration.

The initial results from this initiative have been outstanding.

Findus of frozen fish brand in Italy delivered a strong turnaround in all key performance metrics, including a material improvement in value and volume growth trends.

Our market shares rebounding along with improving rate of sale.

In fact, Findus is lifting the velocity and penetration of the entire frozen fish segments by bringing consumers back to the category.

Our strong performance in our largest markets, UK is another example of our focused approach as our first quarter volumes in UK were up strongly and we even gained volume share.

A positive momentum was driven by a number of strategic promotions backed by strong media activation to drive consumer awareness.

We supported our UK vegetable portfolio with the continuation of our [sweet peas] guarantee campaign to highlight the superiority of our peas.

We launched a series of influenza lead content, highlighting the great relative value of frozen as part of the 100 years of frozen celebration.

And we highlighted poultry as a lean, affordable protein for consumers with our Chicken Worth Dipping campaign.

My final success story to highlight is Austria where Oylo brand is showing an outstanding turnaround, leading to a nearly 80 basis points volume share expansion and stabilizing value share in the first quarter.

Our value and volume sales growth in Austria meaningfully outperformed the overall portfolio as we secured more promotional slots while leveraging our Life Well Fed campaign to drive greater consumer engagement.

Our strong performance in these high-protein opportunities is a testament to the power of our growth flywheel and gives us greater confidence in our outlook as our flywheel starts to spin faster.

Our renewed growth flywheel is enabled by our productivity agenda, particularly across our supply chain, which continues to operate in a highly effective manner.

We are operating with great agility and nimbleness and building even greater flexibility in our coverage plans to remain well positioned to take advantage of the underlying volatility in many of our key commodities.

At the same time, we continue to raise the bar in terms of meeting our customers' demand with our service levels rising to record highs during the quarter.

We are accomplishing it with increasing focus on efficiencies and productivity across our supply chain.

We are optimizing our manufacturing, warehouse, and logistic network.

We are reevaluating many of our co-packer relationships and reducing complexity throughout our supply chain.

Our supply chain has been a key enabler of operating these savings, and we expect it to deliver even greater contribution in 2024, particularly as the expected volume recovery lifts our fixed cost absorption.

In conclusion, 2024 is off to a solid start.

Our quarterly volume and share trends improved sequentially.

And as I reflect on our performance, we believe it's clear that we are positioned for even better trajectory ahead.

Our growth flywheel is working, and we are fueling it to spin even faster by making disciplined investments in our brands, in our capabilities, in operations, and in our people.

We are reiterating our full-year guidance.

Over the longer term, Nomad Foods is well positioned to deliver attractive top tier and bottom line growth which, coupled with our balanced capital allocation strategy, will lead to superior returns for our shareholders.

With that, let me hand the call over to Samy to review our first quarter results in greater detail.

Samy?

Thank you, Stéfan, and good morning, everyone.

I am pleased to present another quarter of solid performance at Nomad Foods.

For the first quarter, reported net revenues increased by 1.1% to EUR784 million.

Organic sales increased by 0.3%, while favorable effects contributed 0.8% to quarterly sales.

Higher price mix contributed 2.5% during the quarter as we lapped the year-ago pricing and benefited from favorable customer and product mix.

Quarterly volume were down 2.2% a marked improvement from down 8% in the fourth quarter as we return to volume growth in many of our key markets and remain on track to deliver positive volume growth for the full year.

First quarter gross profit declined by 5.9% to EUR211 million.

As expected, first quarter gross margin decreased by 200 basis points from the year-ago quarter to 26.9%.

Let me spend a few minutes on our gross margin performance during the quarter.

As I mentioned on our last earnings call, our first quarter gross margins were pressured by the anticipated impact from balance sheet inventory revaluation to account for year over year changes in inflation.

This change is purely mechanical and impact only our first quarter margins as we reset our inventory unit costs in January.

On the underlying basis, our gross margin benefited from moderating costs, increasing productivity, higher margin mix, and optimize promotions.

We expect these drivers to continue through the rest of the year and enable us to deliver a higher gross margin for the full year.

Adjusted EBITDA decreased by 16.4% to EUR122 million in the quarter due to lower gross profits and higher operating expenses.

Adjusted operating expense decreased by 11.5% from the year-ago quarter due to the planned step-up in our A&P investments, which increased by more than 20%.

First quarter indirect expenses increased by 6.4%, including 2% FX headwind as we continue to invest to upgrade our capabilities and absorb wage and other non-commodity inflation.

Adjusted net income declined by 25% and adjusted earnings per share declined by EUR0.09 to EUR0.37, largely due to the margin dynamic I described earlier.

We repurchased a little less than EUR0.5 million of ordinary shares for nearly $8 million.

We have $492 million left under our current $500 million share buyback authorization.

Our cash flows are off to a very strong start in 2024.

We generated EUR49 million of adjusted free cash during the quarter as our strong working capital improvements more than offset higher cash interest.

Specifically working capital was a EUR76 million benefit to the quarterly cash flows as our days of inventory declined substantially.

Business transformation project driven capabilities have enabled a much more robust inventory management, even as our volumes improved and our service level increased to record high levels.

On the other hand, phasing of our cash interest expense was a nearly EUR30 million headwind, driven mainly by the timing of our term loan repricing.

CapEx of EUR19 million decreased modestly from last year as we delivered 81% free cash flow conversion during the quarter.

We declared our second quarterly cash dividend of EUR0.15 per share last week, highlighting our strong consistent cash flows and our commitment to effective capital allocation to deliver enhanced shareholder returns.

Turning to our guidance for 2024, we are pleased with our first quarter performance in our building momentum, enabling us to reiterate our full-year guidance.

We continue to expect net revenue growth of 3% to 4%, adjusted EBITDA growth of 4% to 6%, and adjusted EPS of EUR1.75 to EUR1.80 per share and adjusted free cash flow conversion in the 90% to 95% range.

Of 3% to 4% net sales growth in 2024 is expected to be relatively balanced between price mix and volume with positive volume growth for the full year.

We expect continued sequential improvements in the second quarter and consolidated volumes to turn positive by the second half as our renewed growth flywheel begins to turn faster in response to our investments.

As I mentioned earlier, our underlying gross margins are tracking well to deliver full year expansion.

We continue to expect relatively flat to modestly lower inflation for the full year and are building greater flexibility in our coverage plans to potentially benefit from lower costs in some of our key commodities.

Our improving volume trajectory reinforce our commitment to continue to invest behind growth.

We continue to expect our A&P spending to remain elevated in 2024, particularly in the first half.

Our US dollar-euro exchange rates as of May 1, our adjusted EPS guidance translates into $1.89 to $1.95 earnings per share and implies a 9% to 12% year-over-year growth.

We are on track to deliver 90% to 95% adjusted free cash flow conversion for the full year and remain committed to returning capital to shareholders through highly effective capital allocation, including quarterly dividends and opportunistic share repurchases.

I am pleased with our momentum in the first quarter.

It's a testament to the hard work and dedication of our talented workforce.

Our growth strategies are working, and we are even more confident in delivering top-tier, top and bottom line growth in 2024 and beyond.

I will now turn the call over to the operator for your questions.

Thank you, sir.

And ladies and gentlemen, we will now be conducting the question-and-answer session.

(Operator Instructions) Rob Dickerson, Jefferies.

Thank you so much.

Good morning, everyone

(multiple speakers).

Hello.

Stéfan, just a quick question.

I just heard Samy speak to a positive volume growth for the year and then also volumes turning positive year over year in the back half of the year.

If we go back a couple of quarters, you know, originally, I think the expectation was maybe some time, let's say, late Q1, it seemed like maybe it could kind of go into Q2.

So maybe like volumes could wind up still being positive towards the end of Q2.

It just feels like it's moved forward a little bit on.

I'm assuming that's just, you know, based upon kind of the timing of deployment.

So I'm curious one, is that correct?

And then two, what would you say you expect to be fully deployed in terms of your brand-building initiatives?

Thanks.

Well, let me start with the data, Rob.

I think the trajectory of volume is interesting in and of itself.

So Q3 last year, minus 13%, Q4 minus 8%.

Q1 this quarter is minus 2%.

So this is the first piece.

So the trajectories is quote, unquote, very interesting.

I would put it that way.

The second piece is what we said at CAGNY, which is really the key point for us.

And we said that, yes, we should expect a volume growth by crossing the line during H2 and being positive overall on the full year basis.

Well, you see the trajectory by the way, you know, we are also pleased with the way the trajectory continues in before.

So that's where we are.

In terms of resources, to your point, it's really interesting because it's a full deployment of all the elements of the flywheel.

It started really end of Q3 with A&P last year.

We really raised the game.

We continued in Q4.

We're continuing in Q1 plus something like more than 15%, 20% versus last year, and it's going to be even higher by the way versus last year in Q2.

So you can see that, you know, it's really starting to do well.

And it has, by the way, a very positive impact in our must-win battles, and I'll come back on that later.

So that's the big piece.

The second big pieces is RGM.

And look, the first two months, we're really promo based.

It was deliberate.

We wanted to make sure that all the consumers would come back in the middle environment in terms of cost of saving that the consumers would come back to us.

And that was really the points we wanted them to come back and then at some stage and obviously, the other components of the flywheel like quality superiority and innovation and A&P obviously would start to kick in, and that's exactly what we're seeing.

So from that standpoint, nothing has changed compared to that way.

Maybe, we are just reiterating what we said, and we're pleased with this trajectory, not only in terms by the way, in terms of volume, minus 13%, minus 8%, minus 2%, but also in terms of mix because when we see the mix within these volumes, we see that there are different categories, let's say, to make it simple, the top 25 must-win battles, which is really what matters for us.

The big things in terms of market share in terms of gross margin is obviously goes faster to say the least and for example, of private label components.

So that's the combination of what we see right now.

And that's what you'll see with also what we're going to see in Q2 and beyond.

Okay, super.

And then for my one follow-up, Samy, just on the gross margin side, we clearly understand the dynamics occurring in this Q1.

I do believe there should be gross margin expansion forthcoming.

I think you said for the rest of the year playing each of the quarters Q2 to Q4.

At the same time, you usually do have a nice seasonal dynamic in the Q2 to Q3 period relative to the other quarters.

So I'm just curious, as we kind of move through the year, including Q2, relative to Q1, I mean it sounds like there should be a fairly material step up in that gross margin, adjust on a seasonal basis in Q2 relative to Q1.

But then in the back half, the year over year improvement, is driven partially by seasonality, but maybe also what you're speaking to on the productivity side.

So I'm just trying to gauge essentially gross margin cadence and the year-over-year expansion potential for the rest of the year.

Thank you.

Rob your interpretation is absolutely correct.

I mean, that's exactly the pattern we're going to have we've taken these one-time adjustments in Q1, but the dynamic is such that between effective intervention we are making on the top-line and particularly with our RGM and the recognitions of volume growth, which is helping from a scale standpoint as well, combined with cost savings.

And you demonstrate we made from a productivity standpoint is gearing us effectively together with let's say, stabilizing moderately lower short inflation prices there and potentially even declining in some categories.

We're getting to a point where gross margin is intended to grow in for the year.

We will have that point effectively in Q2 and Q3 for the seasonality factor that you mentioned.

So we will see a step-up in Q2 and Q3, let's say, a bit lower in Q4 and then leading the whole year to a growth in gross margin.

That would be effectively our commitment for the year.

Super.

Thank you.

Thank you, Rob.

Thank you, Rob.

Steve Parvis, Deutsche Bank.

Hey.

Thanks for the question.

Your first question, Stéfan, if you just spoke again in response to Rob's first question on the sequential improvement you've seen quarter over quarter volumetrically and market share wise, I guess, when I looked at the data, at least that we see from the outside.

It looks like the month of March was some sort of a step back from where you were in January, February, and perhaps that corresponds to the recalibration on promotional investments.

But maybe you could talk a little bit about what you've seen through the first third of the year, month over month.

I think that gives you the confidence that that, that quarterly progression of improvement will continue as we go into quarter one and 2H?

Well, I think to your point, I think it's -- we knew that we would -- it's never linear, these things.

That's very clear.

I think what you need to see the trends and also the actions that come with it.

So we knew that you know, Q1, P1, P2 were very solid promo driven in line with the with the revenue growth management.

And so that's exactly what we wanted to do.

And then there is a bit of, I wouldn't say pause, but at least a lighter phase in terms of promo in P3.

So as it was expected, so that piece, as you know, obviously, we're going to go month by month, depending on where we stand and we're going to have to load higher promo, sometimes lighter promo, the big difference with the past is everything now is very much driven by revenue growth management.

In the past, it was probably a bit more, let's say what you know, the country -- I think the only thing.

So that's very different.

Now it's really the huge fuel utilization of the flywheel between promo, one thing, A&B really coming starting to kick in big time now.

Obviously, innovations coming back.

We talk about innovation a bit later, hopefully, and then obviously the rest of the flywheel for us.

So that's the piece and so what you need to see the projection you're talking about the first 3rd of the year, to your point, I think, we like the trajectory.

So in other words, April is -- we like what we see in the in terms of trajectory in before.

So that -- well, I think the minus 13, minus 8, minus 2 is what you need to see and nothing has changed what the country compared to May and what we said in terms of not only the volume, but the way volume is absolutely key.

And that's why, by the way, we give.

We never provide these elements volume, which we know it's absolutely fundamental.

So we see this.

Let's not forget, the other piece, which is price and mix, and we like what we see in terms of mix within our portfolio.

Very good, very good.

And actually that leads to a part of my next question.

So as we go forward, I think your full year guidance, which calls for a relative balance between volume mix and pricing on the year, it implies a less price contribution as we go forward.

And I'm curious, is that from here, is that just more cycling prior year pricing or do you expect sort of net above the line investments and promotion from here, perhaps time with innovation to your point earlier or otherwise?

How we think about the -- you've been very clear about the advertising investments you foresee, but I'm curious as to how we think about incremental investments above the line and promotion and price?

So Steve, just to just one point of clarification, just to be super clear there, we have, let's say, adjusted our net sales, let's say, comments and perspective by highlighting volume and price mix together for the main reason that effectively the focus on volume.

It was important for us to clearly highlight that I will hand the numbers that you are listed as Stéfan has been sharing with you earlier because you are mentioning volume mix, I think we look at volume and really get price mix.

So we have provided actually and in the addendum reconciliation of the two bridges so that you have the perspective there.

And that enables us to really see the huge dynamic that we see now volume and the strong momentum Stéfan was alluding to.

So what we are seeing right now effectively as we lap Now last year into this year and the fact that the environment is becoming moderately, if you want to slightly declining on some of the commodities, we will see less pricing impacts year-over-year.

I mean, from that standpoint.

On the other side, by the sheer fact of focusing our investments behind must-win battle, meaning, last category, big countries, highly profitable businesses and that are growing we will have, likely fewer stronger mix effect as we move forward.

So what you will see, we'll see this gradual positive development on the volume side.

But at the same time, if you want, while pricing starts to moderate, it's not going to be zero.

It's going to be just moderating because we'll do some pricing on those areas where we will see some form of inflation, but we'll have to do it in a very surgical way.

At the same time, we will be promoting to RGM as Stéfan was alluding to and making leveraging all of the legs of RVM.

But the one thing that is going to come across in a stronger is mix and so you had a volume starting to clearly develop positively and the price mix that will be skewed more towards mix than pricing RVM.

Okay, very good.

Thank you so much.

I will pass it off.

Very appreciative.

Thank you, Steve.

Jon Tanwanteng, CJS Securities.

Hi.

Thanks for taking the questions.

Stéfan, I was wondering if you could talk about the must-win battles.

It was nice to hear that you grew in 15 out of, I think 25 of them.

I was wondering if you could talk about the other 10 out of the 25.

We haven't seen the volume growth yet.

Is that just because they haven't been activated or maybe a little bit later to start?

Or do you have to make any adjustments there on as we go forward?

Well, to your point, I think we are classifying things between the A, B, and C. So the must-win battles, if you may remember, we started, if obviously, we started with something around 70% of our sales and by the very definition of the focus on these must-win battles, the 70% has become 80%, 85%, 90%, which means by definition you have to do the exercise again.

And now we're doing it again that we much more focus again.

And the A, B, and C, and let's say, A represents around two-thirds of all of our sales.

And obviously they have the highest margin.

They have obviously the highest market share and also the highest progression.

So within this 1.1% of sales and also minus 2% in terms of volume.

Obviously you can imagine that's where we're doing the best by far.

The others, the big branded, the big private brand, let's say, must-win battles, a smaller base of something like probably 20% of these numbers.

So they're doing in line.

I would say with the rest of the business.

And well, we achieve, which is fine.

But that's also just very reflective of where we're putting our money.

And in promotion, but also A and B, so in terms of A and B, it's interesting to see, we're not only increasing big time A and B, but also with these increased amounts, we are focusing these increased demands to the A brand, to the must-win battles, which is a double increase, and that's a big difference.

So in a nutshell, it's not -- doesn't mean that we make big neglecting the B must-win battles, but they represent around 20% of the A listing battles.

And they're doing, let's say, to make it simple in line with the rest of the business, I will put it with the total business.

So there is a difference and that's exactly you know what the allocation of resources is.

That's very clear.

But in the logistical elements of -- I think in the context of what you're saying on the execution of the flywheel and we took about spinning and accelerating the flywheel in there, we did start that the big one, the most profitable.

And little by little, we will have the coverage of the 2025.

That's very clear.

So there's an element of sequencing there.

It was very important for us to continue the momentum we established in Q4 continuing in Q1 and for the rest of the quarter.

But prioritization of the missing.

But that doesn't mean we are not investing a lot considering the rest.

It's a very important part of the portfolio.

But when you allocate your assets effectively and your advertising assets, you really want to do it where the growth potential is the highest and where the profitability is maximized.

Got it.

That's very helpful.

Thank you.

And then both Stéfan and Samy, I think you mentioned that you've seen lower commodities or inputs in your prepared remarks.

How much decline have you seen so far this year?

Or are you seeing in the future and kind of compare that, how many of -- how much what percent of your inputs have you secured so far?

And how much room does that leave you to benefit from lower prices as we go through the year?

So we have at this stage, covered about 80% of our food, our commodities.

And that helps us if you don't bring, let's say keep some flexibility balancing affected the supply requirement.

We have to make sure that we can produce what we want at the best possible price.

But we are left with about 20% uncovered in a context of effectively moderated to effectively slightly declining prices on some of the some of the commodities.

That puts us in a quite good position if you want to enable us now to breakeven, manage our RGM, intelligent promo intervention and margin development.

It will allow us at the same time symptom to reinvest and to improve our performance overall.

Great.

Thank you very much.

Okay.

Thank you, Jon.

(Operator Instructions) John Baumgartner, Mizuho Securities.

Good morning.

Thanks for the questions.

(multiple speakers) Maybe first for Stéfan.

I wanted to touch on promotion and specifically non-price promotion and the lift from display in the portable freezers that you're placing outside the aisle.

With frozen fish demand sort of coming off seasonally for the summer, we expect that non-price promo also becomes less of a support and price permanent increases in the mix.

I guess pent-up demand drivers change seasonally to sustain the volume recovery that we're seeing until you get to Q4?

No, I don't think that we've built there is going to be a material change, much differences.

No, it's more structural than it used to be in the past.

So the flywheel, which is really a great tool.

We should show this to you.

One of these days because it's really a great tool that it's not only used at the center, but it's really used at the regional level.

And then depending on the weather where the situation is trend-wise.

And then let's say category wise, they may decide to go with non-promotional approval.

So it is very different country by country or would be that way.

But the difference is no, it's really structured the right way.

So there are countries where, quite frankly, non-promoted is working absolutely.

And the way it's working, I can tell you where we are using it there are some countries I can mention, obviously, the Adriatics, for example, the non promo side is very big and that we are also testing in some of the countries in other regions.

And we are we are quite pleased with the results.

Great.

And then Samy, on the operating expense line, I think Stéfan mentioned Q1 A&P spending was up 20%, but total OpEx was only up about 12%.

What was the offset there that blunted the rate of total OpEx growth?

Was it was it productivity?

Was there a timing shift at all?

And if it is efficiencies, what are your expectations for that to sustain for the duration of 2024?

So there has been definitely, I mean, efficiencies, I would say overall that we have that we have seen operating, I would say, from the time and a bit of phasing.

I mean, they're in a way that effectively we are frankly, trying to shift our spending where with the event, I mean in one of the elements within the flywheel that we're trying to do is synchronization of the different elements there which is at the same time, we synchronized the RGM, in A&P, and as well the in-store activities.

And from that standpoint, overall flywheel is being exactly synchronized, hence, the point of the fact that the trend will be good.

But then you may have affected some month-to-month, I mean differences there.

But from a productivity standpoint, we see now a step-up, gradual step-up across the year.

Now as we have now programs, both from, let's say, on the gross profit side, we do with our cost-saving program from a manufacturing standpoint, but that's what we are seeing the same effect on the below-the-line effects on operating expense as we move forward.

The ramp up of the marketing expense, I mean of the A&P is clear.

It's above 20% increase in Q1 and even more so in Q2 and Q3 and over the year, there will be a step change.

I mean, as we have resolutely to that point.

And from an indirect standpoint, if you want as a combo of investments combined together with them in some productivity in dimension as we look at the total year.

Thanks, Samy.

Thanks Stéfan.

Thanks, John.

Thanks, John.

Jon Tanwanteng, CJS Securities.

Thanks for the follow up on that.

Not to focus too much on a month to month as you spoke before.

But could you give us a snapshot of volumes in April and how that's trended?

And if we should have taken with that?

I would say it follows that interesting trajectory.

I hate to come up with obviously, but monthly results, but it's we're pleased with what we see and we put it that way, and it's very much in line with what we said at CAGNY.

Okay.

Fair enough.

And then just as you head into the seasonally stronger quarters of Adriatics, are there any puts and takes as we think about the year over year comparisons that you've had two very strong years in a row from there?

Does it make it difficult?

Well, it's a great question.

I will see that way.

When you see addressing it's a business of two sides you have, let's say, the ice cream, which is to your point, it's quite seasonal, high margin.

And they quite frankly, they're really doing well.

And they have really performed well doing during Q1, end of Q1, starting already in April as well.

And then you also have your rest of the business, which is frozen food.

As you know, is fish, which is bad in all these things.

What we've seen in this business over the last two years and it's on its way to be finalized.

We deliberately have switched, the business from commoditized, I'd say categories in fish in investable to something which is much more in line with the rest of our business, in terms of fish fingers, in terms of coated fish, and also prepared vegetables, and all these things which in a nutshell, we're switching the volumes but also increasing the margin.

That's a big piece because it was really a business to your point where Q2, Q3 big margin, and then Q3 to Q4, and the Q1, let's say, low margin because it was more commoditized for frozen food.

We're changing this.

First with what we see is we tried to expand the seasonality of ice cream.

That's one thing starting earlier.

Finishing later and second, within the rest of the frozen food business, we are really switching from low margin to higher margin.

It's a switch, takes time.

So you have to change.

It doesn't mean that we are gaining volumes with.

We have better volumes.

And that's what matters.

And then from that standpoint was great, by the way is we don't have to reinvent the wheel.

We just have with the people in Serbia and Croatia, they just have to check, what's available in the rest of the business.

And we have great fish fingers.

We have great go to fish.

We have great, you know, best business.

So that's a really -- it's a quick launch.

It's a lift and shift and fully launch, its innovation, but it's low risk innovation.

So we like the trajectory.

So we don't think you know that if they have breached.

They have maxed out throughout the country.

But it's important to note as well that the margin progress you will see in Q2 and Q3 are not only coming from the mix of the Adriatics, but they're coming effective from the base business.

That is benefiting from the point I was making earlier on the gross margin impact that you saw in Q1.

That is actually, let's say, moving translating over for the rest of the year into quite, let's say, important to gross margin improvement given the dynamics that we have on the top line and other costs as well.

Got it.

That's very helpful.

Thank you.

Thank you, John.

You're welcome.

Ladies and gentlemen, we have reached the end of the question-and-answer session.

I will now hand over to Stéfan for closing remarks.

Thank you, Judith, and thank you for your participation on today's call.

We have a proven track record of delivering uninterrupted growth.

Our growth flywheel is beginning to spin faster, making even more confident about the outlook.

I'm excited by the opportunities ahead of us and look forward to meeting many of you in the coming weeks.

Thank you very much.

Ladies and gentlemen, that concludes today's event.

Thank you for attending, and you may now disconnect your line.