Nomad Foods Limited (NOMD) Earnings Call Transcript & Summary

So next up, we've got Nomad Foods. But first, please join me in thanking Nomad for sponsoring the great lunch yesterday. With us today from Nomad are CEO, Stefan Descheemaeker; and CFO, Samy Zekhout. Nomad is a branded frozen food leader across Europe and has been on a great run since being formed back in 2015. The company has some of the most beloved brands in Europe like Birds Eye, Findus, iglo, Aunt Bessie's and Goodfella's. Company recently expanded into the Adriatic region with ice cream giants Ledo and Frikom. Since 2016, Nomad has balanced solid organic growth with M&A to increase its revenues by more than 50% and more than doubled its EPS. The company reported its Q4 financials this morning and heroically is following up this afternoon with a longer strategic discussion. Stefan, over to you.

Thank you very much, Andrew. Heroically indeed. So good afternoon to all of you, and thank you for joining the Nomad '23 CAGNY presentation. And I must admit, it's exciting to speak here again after 3 years away. So we reported our full results earlier today. Our business performed strongly against a challenging macro environment. 2022 represented the sixth consecutive year of record sales, adjusted EBITDA and adjusted EPS. And now we would like to thank everyone at Nomad that worked so hard to deliver these great results. Last year, we reacted quickly to an evolving set of challenges brought on by COVID-19, the war in Ukraine, threats to our fish supply, higher raw material prices and rising interest rates, to name a few. We made a number of important adjustments to our business model in real time against a very, let's say, volatile backdrop. But we maintained our strength and strengthened our core of who we are as an organization. We have great people, iconic and market-leading brands in an attractive category, and a healthy and improving financial position. Frozen food remains a great category with a strong outlook. Last year, we raised price to protect our margins from historic input cost increases. However, many of our competitors did not follow us. As a result, we have naturally seen volume declines and marginal losses in market share. We expected these results, and we see this as a part of a broader process that we're actively managing. Protecting margin is a key -- is key to our long-term success, and we believe these volumes and market share losses are short term in nature as consumers adjust to new pricing. Yes, last year was a challenging year for Nomad's equity shares, as the valuation dipped, but we are a high-quality business with a great long-term outlook in an attractive category. With our leadership position, strong cash flows and flexibility on capital allocation, we see great opportunities for shareholder value creation ahead. Over the next 30 minutes, Samy and I will take you through why we are so optimistic about Nomad and share our plans for creating sustainable profitable growth for this year and beyond. So I'll spare you the disclaimer, and I will go immediately to Slide 4. Beside my name, thank you very much. And so let me really focus on what really matters here. Nomad has continuously delivered organic sales growth and strong cash flow. This has allowed us to invest in the business, make accretive acquisitions and buy back our own shares for double-digit adjusted EPS growth over time. But before we get into the specifics, let me highlight the intrinsic strength of our business and why we remain so positive on the long-term prospects. First, we are the market leader in frozen food in nearly every market in Europe where we compete. The frozen food category benefited from pantry loading and increased at-home dining occasions during COVID lockdowns. We've kept the lion's share of that growth. And additionally, frozen historically has performed well in difficult times. And we expect this year that our consumers will remain focused on the value and nutrition that our products provide. Second, we have a wide portfolio of beloved and market-leading brands. Within our portfolio, we emphasize our core products, or what we call the must-win battles. These heritage brands are among the most recognized in Europe, and we have a significant edge versus competition in these categories. We generate free -- strong free cash flow, and we optimize the allocation of that cash to maximize returns for our shareholders. Historically, we've put that capital to good use. We've been active in both M&A and buyback in recent years where we have invested more than EUR 2 billion. We've delivered strong organic growth over time and enhanced these results with top and bottom line synergies from accretive M&A. This has allowed us to win in the market, while delivering strong results for shareholders. And finally, we have an established and an excellent model of acquiring and integrating assets. We are especially excited about our latest acquisition, Fortenova, in the Adriatic regions finalized in late 2021. Fortenova delivered strong revenue growth this summer and was integrated well ahead of plan. With great summer weather and tourists driving sales, we exceeded our sales expectations in '22, and we see plenty of opportunities ahead. Nomad Foods is Europe's leading frozen food company. We operate in 22 European countries with more than 8,000 employees. We now generate roughly EUR 3 billion in revenues and more than EUR 0.5 billion in adjusted EBITDA. Organic revenue have grown, on average, 3% annually since 2016, while we have delivered 12% adjusted EPS growth during the same time. As you see on the right side of the slide, we have iconic brands such as Birds Eye, Findus, iglo. Ledo and Frikom that you probably don't know are the most addition to this list. And they are high cream superstars across the Adriatic region and had a great first summer on our portfolio. We have plans to grow ice cream, both organically and geographically. Green Cuisine, our fast-growing brands -- plant protein brand launched in 2019 is on the road to becoming a leading player in the category. What these brands share is a compelling proposition of quality and value unmatched in all category. To our millions of consumers and families, we sell food that is high quality, nutritious, convenient and great value. It's a winning combination, especially now. Our footprint in Europe has expanded rapidly since our founding in 2015, and we still see more to do. We began the Nomad journey with the formative acquisition of Birds Eye in U.K., iglo and Findus in 2015. These brands have been family favorites for decades, and they remain our backbone today. We followed up our 2015 transaction with the individual additions of both Goodfella's and Aunt Bessie's in the U.K. and Ireland in 2018. These are great businesses, and both acquisitions raised exposure to profitable and high-growth segments. We then unified the ownership of the Findus brand in 2020 by acquiring Findus Switzerland. In September 2021, we acquired the Adriatic frozen food and ice cream business from the Fortenova Group. This acquisition has been especially positive as it had a great year in 2022 mostly by robust tourism and the summer heat wave. Revenues and market share grew rapidly, and our integration was well ahead of schedule. Yes, there is still significant white space, as you can see, both geographically, but also, very importantly, in new product categories in existing countries. We're working hard to identify opportunities that make sense strategically and are accretive to the bottom line. Integrating attractive assets is a major part of our DNA and is at the core of what we do well. We see this as a major competitive advantage for our company. Well, here, let me go quickly through some fun facts. I don't know if you'll find them funny or not, but let me read. At the end of the day, what really matters is 3 things. It's about sustainability, as you can see, which is something we're taking very seriously, and we'll come back on that later. It's about size, it's very light, it's a sizable business. And it's about quality. Look at what we have. Our brands in ice cream in Serbia and Croatia was recently voted as best ice cream in the world. So these are the 3 key points that you need to remember from this slide. This slide is absolutely fundamental because it's really the essence of the algorithm that we've been developing over the last year. So our financial strategy is built on driving organic sales and compounding that growth with effective cost management and value-accretive capital allocation. So since 2016, we've grown organic revenue at a CAGR of 3%. We've augmented that organic revenue growth with M&A, effective cost management and opportunistic buyback. On an annual basis, we have grown revenue by 7% and adjusted EPS 12%, on average. Organically, we have grown faster than the category, making key investments in our core business, our must-win battles, to grow market share. While we see 2023 as a transition year, we are confident that we can sustain this winning equation and algorithm for the years to come as we adjust to market changes. Our business generates strong cash flow, which we invested in the business, M&A and share buyback. We've generated more than EUR 1.7 billion in the free cash flow since 2016, converting more than 100% of adjusted profit into cash flow on average during that period. We believe the right long-term free cash flow productivity for our business is between 90% to 95%. In '22, we build working capital to mitigate supply shortages, which was the right decision, and adjusted to the implementation of the Unfair Trade Practice Directive, UTPD, in EU. With these events behind us, we expect to return to 90% to 95% cash flow conversion this year. Back to brands. Well, our commercial strategy starts and ends with our brands, which we'll protect at all costs. We have our iconic trademarks like Birds Eye, Findus, iglo, Ledo, Frikom and other gems as well, like this Captain, for example. Our commercial strategy is to make superior products and keep these products relevant to consumers with effective communication at all levels. We consistently see the result of our brand building in high levels of awareness for our products. As you can see, we have the highest levels of brand awareness in nearly all of our markets. We compound the power of extensive portfolio with a laser focus on our core country and category combinations. On this side, we see specific examples of our top core products, the must-win battles again, iglo spinach in Germany, for example, in the middle; Birds Eye fish fingers in the U.K.; and the recent additions of Ledo's sub-brand King ice cream in the Adriatic regions and more to come, obviously. These must-win battles represent approximately 70% of our sales. They're growing faster and our highest margin and market share products, fueled with great investments. We believe these brands all have room for sustainable, strong revenue and market share growth. This must-win battle strategy has yielded an average organic revenue growth of 5% since 2017, nearly twice that of the old company average. Within the narrow band of where we compete in our must-win battles, we have about 40% market share, well ahead of our roughly 20% market share overall. They have continuous and consistently gained market share and are really the fundamental pillar of our commercial strategy. Back to M&A. M&A has been a crucial driver of our success. We've made 5 accretive acquisitions in 2015, adding great brands like Findus, Goodfella's, Aunt Bessie's, Ledo and Frikom. Since the formation -- the formative, sorry, EUR 700 million deal in 2015, we have invested an additional EUR 1.2 billion, adding dynamic new assets to our business. These have given us the operation platform and balance sheet size needed to make additional acquisitions if we decide at some stage to go that way. Innovation is also a major part of our DNA and strategies. We have consistently invested in innovation on our core businesses, while leveraging new brands and categories from our newly acquired businesses. We are steadily increasing the rate of this innovation as a potential of sales from 4% in 2016 -- 2018, sorry, to 6% plan in 2023 and all the way to a projected 8% by 2025. And we define, as what people do, innovation as new products being introduced within the last 2 years. We continually innovate with new products and meaningfully with line extensions that are value accretive. Additionally, we have an ongoing renovation program, which is fundamental for us, which is designed to improve the quality of our existing production. European consumers are under pressure today from rapidly increasing food inflation this year, definitely. Our innovation plans for '23 will focus on meeting the needs of stressed families with value frozen, again, as an affordable, nutritious and low-waste option. Both affordability and value will be crucial as we address the private labels and discounters across Europe. On this slide, you can see example of a planned affordability innovation for this year that will include key categories like fish, vegetables, solo meals, chicken and pizza. We have planned entries in potatoes as well as other parts of the businesses. Green Cuisine had a great year in 2022, and we continue to invest in brand awareness and new products to grow faster than the category and gain share. Since its creation in 2018, Green Cuisine has grown to sales of more than EUR 55 million. The brand has high gross margin than company average and is gaining market share in a category that has short-term headwinds, but we definitely believe as a long-term great future. In 2021, Green Cuisine won product of the year in the U.K. for chicken-free dippers. We followed that up in '22 by winning product of the year again for new battered fishless fish fillets. Our Welcome to the Plant Age campaign has won multiple awards across Europe. So we believe our success in the U.K. and Germany is exportable across the rest of our markets. And we're very happy with the current performance and continue to invest in what we think will be the defining brand of this exciting growth category. At the core of what we are as an organization is our aim, which is to serve the world with better food. We take our role as a good corporate citizen seriously. And I'm very proud of the work being done by our teams as we collaborate with peers, suppliers and expert partners to deliver a more exclusive -- inclusive and resilient food system. Currently, we are tracking ahead of schedule versus our '25 targets to source 100% of our fish and seafood to MSC and ASC certifications. We're also on pace to acquire 100% of our vegetable through sustainable farming practices. We are recognized as a leader in important areas where we have already made significant progress. In 2021, we are amongst the first in the food industry to have ambitious emission reduction targets validated by the Science Based Target initiatives, SBTi, which is exactly the contrary of what really rushing is. Additionally, we recently published a one-of-a-kind peer-reviewed life cycle assessment study of 22 of our most popular products. The results show that the majority of our frozen products had an equal or lower carbon footprint to similar products using all the preservation methods to end. Finally, we have been included in the Dow Jones Sustainability Europe Index as 1 of the top 4 companies in Europe in the food and beverage category since 2021. Frozen is an exciting category. It's in line with many consumers' needs, including convenience, nutrition, sustainability. And additionally, with Green Cuisine, we are a leading movement beyond animal protein. Frozen food is inherently convenient and affordable. And our portfolio is one of the most nutritious in Europe. We believe this was highlighted by the COVID pandemic as well as the current cost of living challenges in Europe. The pandemic had a positive impact on frozen food during the pantry loading lockdown period of 2020 and 2021. What is encouraging for us is that we have held on to most of these gains as a company and as an industry. With economic pressure on consumer having in 2023, we expect the category to have another strong year, and we expect consumers will react to higher food price by choosing high-quality affordable products in our category, while doing less out-of-home eating. Overall, we expect frozen will outperform total food this year. During COVID, we added thousands of new household to our consumer base. This receded a bit after the end of lockdown. However, as you can see in this chart, this year, we expect that the number of households where our brands are present will increase by 400,000 when compared to pre-COVID 2019. In our short history, Nomad has successfully tackled many challenges and come out stronger. We kicked off our first year with a strategic turnaround. We then managed through Brexit and the COVID 2019 pandemic. The pandemic accelerated our sales growth in the short term, and we are holding on to most of these gains as a platform for future growth. Last year, on the left side, the war in Ukraine appended our supply chain and exacerbated historical input cost increases, creating consumer insecurity. We took 4 major steps to mitigate the disruption that we were facing at the time. First, we materially derisked our fish supply by diversifying our superspecies and geographies, while ramping up new farm supply. Second, we leveraged our powerful supply chain to build inventories of key ingredients to protect again supply shortages. We did that while maintaining discipline on cost and execution. Third, we priced the product to recover the gap with inflation. And finally, we financed our debt portfolio in November, extending our debt maturities to mid-2028 and '29. Looking to the year ahead, we will benefit from last year actions. The supply of farmed fish is coming online now, and we believe that we have an ample supply of raw materials to manage any volatility in sourcing. Additionally, we believe we are entering 2023 with the right cost structure foundation after our pricing actions in '22 and expect a substantial amount of price rolling over into '23. But we're not sitting still. In '23, we are further adjusting to the new reality of the cost of living challenges we see unfolding in Europe as follows. First, as we discussed in our innovation section, we will strengthen our affordability proposition to appeal to a broader set of consumers, while investing in media to support the brands. This will include products from across our portfolio. Second, we will work to maximize the efficiency of our supply chain, and we invest those savings into top line growth. And third, we will focus on maximizing our profitability through more robust revenue growth management strategies and expect to price our products to recoup the cost inflation. Our commercial strategy will be straightforward. We will reframe our affordable core products to fight private labels and win these value-conscious consumers. We will create new proposition to meet the needs of consumers who are eating more at home, especially families and hybrid workers. And finally, we will invest in our must-win battles portfolio, innovate to maximize our value proposition with consumers. We will be increasing our media support and plan to raise innovation to a higher percentage of sales. We adjusted our EPS A&P spend over the past 2 years to compensate for COVID inflation. With COVID behind us, we will accelerate our investment behind our brands to remind consumers of the great value of our products, what our products provide. With inflation, disrupted supply chains and raw material scarcity, our supply chain was changed throughout the year -- last year. This year will be important and pivotal as we further refine our ability to navigate a more volatile world. For 2023, we'll continue to focus on food and people safety as well as attracting new talents to our business. We will closely manage our ability to anticipate and prepare for any disruption in supply. We will manage inflation while simultaneously maximizing our manufacturing productivity. We will do this all while providing end-to-end excellence. And most importantly, the savings we expect from our cost control efforts will help fund other initiatives across our business, especially sales growth. We executed well on cost control in 2022, and we expect even greater savings this year. These savings will be sourced across our cost base coming from labor, fixed variable costs, utilities and waste. We plan to reinvest the savings into top line investment as well as other part of our business. We experienced historically high input inflation last year, and our price increases did not fully recoup our cost. Looking ahead to this year, we plan to adjust our pricing as needed to continue covering for inflation as well as adjust properly to market conditions in 2023. Finally, revenue growth management will be pivotal. We are taking RGM to the next level by using business analytics to drive stronger demand with the relevant SKUs at the right price points and with the proper communication above and below the line. As we integrate these plans into our commercial strategies, we expect this will help accelerate share and profit growth. And with that, I will turn over to Samy for a discussion of our financial strategy.

Thank you, Stefan, and good afternoon, everyone. I'm really thrilled to be with you today to take you through the financials that we have partly shared, I would say, this morning. So earlier today, I mean, we reported our fourth quarter and full year 2022 results, wrapping up another year of strong financial performance, as you have seen, in a quite challenging environment. Our reported revenue increased nearly 13%, while our adjusted EBITDA and adjusted EPS both increased 8%. Full year organic revenues increased 1.8%, and we raised prices throughout the year to offset inflation. Taking COVID into account and comparison into account, both positive and negative, our organic revenue has grown by about 3% on average on a 3-year basis. This is consistent with our historical average. We faced the most difficult market condition in the history of the company last year. A lot happened. However, we still delivered record financial results, and we believe that this demonstrates the consistency, the flexibility and the resilience of our growth model. Since 2016, we have grown revenues by more than 50%, grown our adjusted EBITDA by more than 60% and doubled our adjusted EPS. As Stefan said earlier, our relentless focus on our must-win battles helped us protect market share as we raise price to offset input cost inflation. We also refinanced a considerable portion of our short-term debt, extending our debt portfolio maturities to mid-2028 and 2029, giving us a greater flexibility on future capital allocation strategies. Our top-most goal, we are focused on winning with the consumer, gaining market share and converting strong operating performance into free cash flow. Today, we are the leaders across most of our markets, and we are focused on growing share in a profitable way within the attractive frozen food category. We generate strong cash flow, and we target free cash flow productivity of 90% to 95% of our adjusted profit after tax into free cash flow. With a sturdy capital structure as our base, we are in a good position to deliver strong shareholder value through cash generation, long-term growth, effective capital allocation strategies and accretive acquisition to strengthen our footprint. Turning to 2023 guidance. As we shared this morning, at an adjusted EPS level, we expect to deliver a range of EUR 1.50 to EUR 1.55 per share for the year, or $1.61 to $1.66 at current US dollar float rate. This guidance excludes any capital allocation impact. When excluding the impact of incremental interest expense and stepped up investments in A&P and people this year, our forecast adjusted EPS range for 2023 would have been in the range of EUR 1.70 to EUR 1.75 per share. Also this would have excluded any positive impact from capital allocation. We are confident that we will maintain our top line momentum from the back half of the last year into 2023. We expect mid-single-digit revenue growth for the year based on price increases more than offsetting volume declines. With a heightened working capital demand of last year and UTPD in our base, we expect free cash flow conversion in the range of 90% to 95%. Given the power of our brands and the strength of our operating model and strategies, we're confident we will achieve these goals in 2023. Stefan went through the very specific steps we are taking to address the short-term challenges that we are facing, specifically on affordability, supply chain refinement and pricing. Looking ahead past 2023, there are 6 strategic areas where we will maintain our focus and energy to meet our long-term goals. First is excel in our must-win battles. We briefly talked about that earlier, where we have a significant advantage against competition, private label and discounters especially. Second is continue looking for accretive acquisitions to broaden and strengthen our product and geographical footprint. We have a great track record, and we'd like to maintain that track record as we move forward. Third is leverage our revenue growth management to maximize the power and profitability of our portfolio. Fourth, protect, at competitive prices, raw material product supply, especially fish, where we have expanded our options with farm sourcing. Fifth is maintain a pipeline of innovation, especially affordable product, which meets the needs of families looking for value. And then accelerate Green Cuisine and ensure we solidify our place as the market leader long term. With that, I will hand it back to Stefan for concluding remarks. Stefan?

Thank you, thank you, Samy. So highlighted this slide at the top of the presentation, and I would like to revisit now. We can be confident about delivering our ambitious target for '23 and beyond. On the left side, we have the interesting qualities of our business, including the powerful leverage we derive from our market leadership, the importance of our dynamic brand portfolio and the consistency of the cash flow we generate. And on the right-hand side, we demonstrate the quality of our execution. We produce consistent organic sales growth, winning the market and smartly integrate new assets. Finally, we think the company is well positioned to power through difficult macros with compelling commercial supply chain and financial strategies. We believe Nomad Foods is a compelling story within global consumer goods. I hope that today's presentation helps you to understand our growth strategy and how we will emerge even stronger in 2023. Thank you for your time.

So a couple of questions. Sorry, you just reported results and you give guidance. I'm going to get a little bit nitty-gritty first in terms of the guidance, the model, and then I have a follow-up. It's a slightly bigger picture question. Packing guidance implies what I would consider to be higher than what I had expected into our expense growth next year when I parse everything out. What I didn't hear from you today or your earnings release earlier, though I apologize I only caught half as I had to jump to P&G, was any talk about your new global business services group. And I know you're putting or leaning into that, and my expectation was that you'd have a little more news to share on productivity that would allow you to offset or absorb like an incentive comp increase. So why isn't that there? Like why is this indirect growing? Why don't I have the offsets? What's the status of GBS? Like when do the savings, how big are they, when do they start to accrue?

Yes. I'll probably take on that question, I mean, Jason. The whole work relating to the transformation project that we are working on, I mean, these are in process. And I think it's just taking steps. We started effectively about 9 months ago, 12 months ago. And we're in the process now of going through the different steps. It's a quite complicated process because it entails different elements of the company. And we will start seeing quite substantial impact, if you want, toward the end of the cycle that we are talking about. So clearly, short term, what you had this year is investment in people, which we have talked. That's why effective indirect is definitely more on the upper side in 2023. And as we move forward, productivity will start to kick in gradually starting a bit in 2024 and continuing on this journey '25 onwards, I mean, at this stage.

Okay. Why does it take so long?

Because it's complex. We have to -- and a lot has to be done in each and every market. I mean, at this stage, we have to consolidate a number of activities, and it touches all parts of the company. It's a transformation. It's not just the creation of a centralization of resources. It's a transformation of the company. But we will see the first part of the first result already this year in terms of shared services, so which is a big thing. So the -- let's say, the cost savings side, we will start -- start to emerge right now with shared services. Typically, the kind of things like, obviously, let's say, procurement in terms of cost to serve, in terms of cash management and all these things will come little by little, let's say, cluster by cluster. That's the first piece. The second piece, which is more about obviously revenue management growth and all these things will take more time because, obviously, that touches the top line, and that will also add the top line to further develop. So it's not -- when we're talking about shared service, the Phoenix, that's the codename we have, it's not only about, let's say, saving cost. It will also definitely develop our top line. And we will be smart in terms of making the right decisions in terms of promotion efficiency, in terms of where to go and all the pieces. So it will impact all the pieces of the business. It's a big transformational agenda.

Okay. And then in terms of top line growth, you've recently had [indiscernible] prior acquisition, putting it in other markets, I think France is where you've gone with really good success. And now you have Fortenova, which is a market that you had some businesses there. But are there opportunities for more cross-pollination of category country combinations? If so, can you give us some examples to get us excited?

Well, the first thing, we will stay true to must-win battles. So in other words, if we think -- you would ask me to -- should we start to expand ice cream in the U.K. with, let's say, creation in certain products, I would say, no, absolutely not. It doesn't make any sense. Now we're going to waste money unnecessarily against the 2 big guys, Unilever and Nestle. It doesn't make any sense. However, what we've seen is, yes, let's say, [indiscernible] France do need our products? They have no access to fantastic stable of fish fingers, obviously of, for example, pizza and all these things. And definitely, that will be deployed. The other way around, yes, we do believe, and more to come, Jason, that we do believe in some specific situations. Ice cream can work because it might be more regional. There are some pockets of people that know the tradition of ice cream in the -- probably for these products. So we will be smart from that standpoint. But at the same time, we will stay true to must-win battles, which is big market share, higher gross margin and the high growth potential. And we're not going to start from scratch. We have opportunities in France, as you know, to develop pizza because there is a white space right now, which is unusual for specific circumstances. And we have -- we intend to play that way. But again, that's -- we have thought a lot about this before getting there because we believe, yes, indeed, there is a white space right now that is totally exceptional, and we're going to work that way.

Two questions from us. First is on your guidance for price. Based on our math, it looks like wraparound pricing will add 9 points alone. A, is that correct? And then, b, you talked about incremental pricing. How much price do you expect to take this year?

We will -- I mean, honestly, it's difficult to answer this discussion, I mean, at this stage because there's an element of carryover. We are still having the cycle of the 3 price increase of last year that is flowing through this year. And like last year, I mean, effectively, what we're seeing is a softening of the inflation, but inflation is still there. And we will have to effectively take pricing in 2023. And the principle would be exactly the same in terms of, let's say, putting everything in place in order to recover the inflation. Inflation will be lower. Pricing will be lower in accordance to that.

It's interesting because it's a moving target. When we started the -- to budget the pricing -- the COGS first and the pricing, actually, we were intending to price more. But now we can see that in some categories, food remains high. But in some categories, inflation is starting to soften. Obviously, we're not going to keep the same kind of pricing and price above, obviously, COGS. It doesn't make any sense. So that's why it's -- to Samy's point, it's very much -- it's a moving target, and we're following that very, very precisely. And there is weekly conversation between the procurement guys and, obviously, the people in the market.

And we -- clearly, just to complement that. I think we don't want to give you a number now because I think it would not make any sense given the fact that inflation evolves. What we are trying to do is try to make sure that we contain that inflation to the minimum level, so that effectively we don't add up another large-scale price increase. And the whole idea would be to go through netting the pricing and inflation.

And then just last question from us here. You did a very good job executing multiple rounds of pricing last year, way better than most of us expected. With that said, it sounds like private label hasn't followed yet. A, is that true? And then, b, how long do you think private label can drag their feet here?

It's a very good question. It's difficult to know because, first, definitely, we -- by definition, we don't have access to all this information. What we can see now is starting to move, starting to move. We have an emblematic, an iconic product in Germany, for example, which is 15 fish sticks a pack, and they've crossed the EUR 3 line. We're at EUR 4.89, they're at EUR 3.19, And it's a big change for them. So we see that starting to come with people like Aldi and Lidl. So that's the first piece. Then let's face it, as in any, let's say, volatile situation, you have a lot of different situations. You have some private label producers, obviously, are increasing very fast. You have then some retailers trying to keep -- taking their margins down to resist the hard discounters. Overall, at the end, they all have the constraint in terms of margin. The only question really is, for us, is about time, how long is this going to take. But we're starting to see the first results. But also that's why it's so important for us to reinvest behind more -- to invest more behind our brands, to go with affordable products, to go with the revenue growth management because that is very much in our control. Andrew?

Can you help quantify the magnitude of the step-up in advertising and promotion you're looking for in '23? And it sounds as though that spending is structural in nature as opposed to sort of one-off. So if that's the case, has something changed? Is there a different dynamic in the marketplace that requires now this ongoing level of marketing spending versus what you had, let's say, in the last couple of years?

Andrew, as you recall, during COVID time, we had taken less advertising expense down, I mean, overall, simply because, effectively, we felt that there was no need to stay at the level where we were. Historically, pre-COVID, we are ranging between 4% and 4.5% of sales. That's how we really monitor, and it went down below 4, and we ended up the year really in the mid-3s, if you want, as we look at last year. The idea there is not to step up or stepping up. The idea was effective to go through must-win battle by must-win battle and try to bring our advertising investment behind those brands that were insufficiently supported. In aggregate, it's not a massive step-up. It is really a step-up on the right categories. And roughly, if you want, that enables us to get back on the journey of the 4%. We won't be there exactly, but clearly on that path that we get, I mean, on that.

Great. Just an easy question on supply. I know there's a lot of discussion on where the supply would come from, obviously, when there is a Russian-Ukrainian conflict. It seems like supply is not an issue for the year. Maybe if you could just talk broadly about how you're thinking about supply and sourcing geographically over the next 2 to 3 years.

Well, I think it's -- every crisis brings an opportunity. Last year, back in -- where we said we're going too soon -- tomorrow, we're going to have the first year of the war. One month later, quite frankly, we had a big issue. We didn't know whether we would be served with Russian fish. We were not the only ones, by the way, that's very clearly. So when you're facing this kind of situation, you have to take some short-term actions, and you also have to go fast to long-term actions. Short-term actions or people are very, very, very good at finding any white fish in the world. And I can tell you that was the order, and find me fish, because we don't know what can happen. And so we've come up with a new -- a very good product, by the way, don't get me wrong, but new -- more exotic fish that, absolutely, we are serving to our consumers as well. But there is a limit to this. So -- because, basically, pollock is big, it's one of the biggest fish in terms of whitefish, and cod is much more expensive anyway, so we have to find something equivalent. So we decided to go, which is anyway something we wanted to do, we wanted to go to pang fish. But then the most obvious one is pangasius. The Brits are calling it Basa. And it's an excellent fish. It's an excellent fish, but we wanted to make sure that we would be at a high standard. So we've taken a bit of time, and we've come up with great farms that are really up to our level. And we're starting this year. So it's going to be a 3, 4, 5 years process. Basically, we have a range. We have the flexibility to decide if we want to go faster, we want to go lower. So it's absolutely a perfect partnership for us. I do believe that long term, anyway, it's a great opportunity for us because, let's say, whitefish is going to reach its limit at some stage. So going with high-quality farm fish is a good opportunity. And well, we're very proud of what we've been doing. Out of the crisis, we've come up with something which is going to help us long term.

Perhaps building on that a little bit, the innovation step-up that you're expecting in '23, can you talk, I guess, even a little bit longer term in terms of is this getting that step-up further, we expect further activity in '24, '25? Or is this a step-up to a more normal run rate from here?

Well, I mean, as I said during my presentation, what we said is this year, it's a reset, it's a transition year. But the algorithm that was presented by Samy for the years to come remains absolutely intact. But at the same time, that's why also we're reinvesting right now behind A&P. That's why we're investing behind the RGM because we need -- we also believe we need other tools. Given the changing market, we need to go with other tools to keep the same kind of algorithm. But we've done it for 6 years. So we just need to question ourselves. We focus, we send the whole thing and then come back.

At this very stage, if I may, I mean, a lot of the focus will be around the cost of living, what we call cost of living innovation, which is actually non-margin dilutive opportunity that would address the needs of consumer needs effectively, so playing on a different option that we have from fish finger to other elements and so on. And as we clearly, let's say, get that part of the portfolio addressed, there's a number of other opportunities. And as I said, don't think of innovation being just fish is fish in the end, but you've got a lot of variable between sustainability to communicate, and we know we are quite good there. Coating, you've got product, you've got effectively all of the ingredients that are composing a ready meal and, as well, effectively, all of the cold and freezing technology. So there's a number of variables that you are looking at to reignite if you want to continue to pump up, if you want the overall innovation stream to get to the 8%, which we feel is right. Actually, the ideal would be probably closer to 10%, but that's the trend we're going to follow as a percentage of total sales.

Okay. Why don't we take it to the breakout session? Thanks again for being here.