Nomad Foods Limited (NOMD) Earnings Call Transcript & Summary

Good morning, folks. My name is Cody Ross. I'm the U.S. packaged food analyst at UBS. Up first with us this morning is Nomad Foods. With us today from Nomad, we have the CEO, Stefan Descheemaeker; and Anthony Bucalo, Head of Investor Relations. Nomad is a brand and frozen food leader across Europe. Their key brands include Birds Eye, Findus, iglo, Aunt Bessie's and Goodfella's. Since being formed in 2015, the company has withered a tremendous amount of external pressure, including Brexit, COVID and now heightened inflation. Please join me in welcoming Stefan to the stage. Thank you for joining us, Stefan.

Thank you very much, Cody. Yes, it's been an interesting time.

To say the least.

Yes.

I thought we could start off by providing a brief overview of your performance in 2022. Can you walk us through some of the highlights this past year and discuss some of the factors that led to your success relative to the fears earlier in the year?

Well, it's been quite a challenging year with that way, probably the most difficult -- from the macro standpoint, that's probably the more difficult year we ever had. We had everything at the same time, you may say, like many people. On top of that, we -- obviously, we had rising interest costs, we had inflation, we had the COGS, we also had something which is very specific to us, which is fish. As you're going to come back on that later. It's part of our fish -- a good portion of our fish is coming from Russian waters. So there were some questions whether or not there would be some limitations and all these things. So last year was really about taking all these issues one by one and how to reduce the risk, that was as simple as that. So we started with fish. You can imagine after the war break out in February, obviously, there was a lot of questions around what kind of tax sanctions will be taken. We never thought -- well, everything is possible, I would put it that way. Food could have been part of the whole system. We didn't think so, but definitely we didn't want to take any risk. So we decided first to, on a short-term basis, to find other fish. We very much gear towards cod and the pollock. We are, let's say, the second biggest customer in terms of pollock together with [ McNeil ]. And so we decided to go with other white fish. That's the first thing we did. Hake, for example. But more importantly, we started -- it takes time, but we started to build a new supply chain in farmed fish, which is something we wanted to do anyway. And at the end of the year, we've been able to come really with the high-quality farmed fish coming from Asia, based on a fish called Basa or Pangasius. Very good fish by the way. I would even argue myself that I would say it's a better fish than pollock. And so now we're starting to develop this line of product. And from that standpoint, the risk level has declined a lot. And overall, it's been a good thing because, strategically, anyway, we want to move away from white fish only. Second piece we did was basically we decided to price. The thing was a lot of people believe that in Europe, while you price once a year, which is true when the inflation is very low, but there is no rule that says it should be once a year. So last year, we priced 4 times. So we started usual way in Q1, something like 1% or 2%. Then obviously, came in inflation with Ukraine. Across synergy, obviously, a lot of ingredients, fish as well. So a lot of things were impacted. So we had a second price increase in Q2. Not enough. And then we really started to have a third wave in Q3 and Q4, which at the end of the day, we really priced, I would say, ahead of competition not fully priced for the COGS yet. Our objective is to -- on a 2-year basis to fully price. But definitely, we've been quite aggressive. And we've developed a new muscle that was not existing at that time. So that's the second piece. The third piece is really -- is about interest rates. We've extended our debts from '24 to '29. Yes, it costs us money. But definitely, when you think about in terms of risk, that was the right thing to do in terms of flexibility as well. So it's been quite an interesting year. And definitely, obviously, all these things are not lost for us because we definitely think that these are the kind of muscles that we -- is going to serve in the future, starting this year, but definitely also in the future in a more long-term basis.

So you discussed taking price. I want to pull on that thread a little bit more here. You mentioned 4 rounds of price. How much price did you take from the beginning of the year to the end of the year, say a rough magnitude? And relative to your expectations, how successful do you think you were?

Well, we've taken much more price than we thought we would. When you think about -- we thought that all COGS, when we started the year, would be around something like $100 million and we finished with something like close to $300 million. So you can imagine that you had to take a lot. And we were very close to take another $300 million, and we haven't been able to take everything. But obviously, we have embarked with the latest price increase. We have -- we obviously, we carry forward, obviously, an additional price for this year, which helps us a lot. So in terms of it's -- definitely, it's double-digit. It's a low -- it's a mid-single -- mid-low-digit in terms of price increase last year ahead of the others.

Got you. That's super helpful. And you discussed taking another round of price on your fourth quarter earnings call. When do you expect that to be fully implemented?

Well, it's a very volatile world because the other way around, what we can see now is when we started to budget your COGS. We came with something, which we thought we were prudent. And at the same time, which is good, by the way, we see that inflation is starting to recede somewhat. It's going to remain high, but it's starting to recede. So definitely, we want to recoup everything. But at the same time, if inflation is lower than we thought it would, we're not going to price the way we thought we would at the beginning of the year. So it's a very volatile world. Next round probably will be early Q3, thereabouts. And we'll see if there is nothing to be done or limited to some categories, we will do the -- obviously, we would be very pleased. And I think so we'll be the consumers.

That's helpful. And then part of the pricing equation is obviously volume, part of your calculation, how you think about how much you've taken, where to take price. So embedded in your mid-single digit sales guidance this year, how much elasticity are you expecting?

Well, we're not providing elasticity numbers as such. But definitely, there is elasticity. Today, there is elasticity for 2 reasons. One is, as we said, we are pricing ahead of the others. Others being all the -- let's say, branded people. But more importantly, private label. It's starting to move a bit, but we're still ahead of the others. And this has an impact because it's -- just it's people haven't priced the same way. The second piece -- and even if the people are probably the same way, temporarily at least doing this cost of living issues, what you can see is -- well, some -- let's say, the upper end of the population of consumers will not really change the consumer habits, especially in frozen food, which is which is quite convenient. It's very good value for money. So that's good from that standpoint. The lower end anyway is not going that much with people like us. It's really the people in the middle that are impacted. And so they impacted at this stage because, obviously, we're pricing ahead. And then temporarily they're impacted because they're just thinking maybe private label in these -- during these uncertain times, obviously, might be an interesting alternative. What we've seen over time is it doesn't last. But at the same time, you also have to reinvest behind your brands to make sure that when things are starting to stabilize, that people are going to come back to you. That's the right way to do. That's why we also explained that we're going to spend more in A&P, which is the right thing to do as well.

That makes sense. Now you talked about private label, and this has been a very big topic of conversation. I think you just mentioned that they haven't followed you as quickly as perhaps some of your other rounds. A, why do you think that is? And B, do you have a thought of how long it will take before they follow?

Well, let me start with the how long. Well, I have no clue. If I knew, by the way, I think I would be in deep trouble because it means that I would talk to these guys, which is probably, by any standards, U.S. or European standards, is probably not the right thing to do. So the honest answer, I don't know. The only thing you can guess is, well, these guys do rely on suppliers. These people have low margin. Private label suppliers do live and die with 7%, 8%, 9%, 10% of gross margin. So when you have this kind of magnitude, at some stage, you have to price depending on the kind of contract they have. Some people have monthly contracts, some people have 6 months, something -- some of the people have 1-year contract. So may change. But definitely, it will change because, otherwise, they can't survive. So from the moment they decide to price and they have the right tools to price, vis-a-vis, their customers, in other words, the retailers and the discounters. Well, that's a decision for these guys to decide what they want to do. They can decide for a while, well, I'm going to stick to my price. There, you have a bit of, let's say, advance between the hard discounters and the -- let's say, the retailers like Tesco, for example. Tesco will try to -- we'll see that Lidl and Aldi, obviously, are trying to -- starting to take some market share. And the best way for them is obviously to push their own private label. And so everything is starting from Aldi/Lidl. What we see is, for example, in Germany, they've started to increase price and then the rest of the market will follow. But that's the kind of dance that you have to -- let's say, you have to be very flexible. You have to do this -- last year, we were very mechanical, making sure that we wanted to increase price, whatever you know the COGS would be. This year, we're starting also to apply some revenue growth management recipes, making sure where is the highest elasticity independently from the COGS. It might be more in fish, but then, for example, poultry is less -- doesn't have the same elasticity, so I can price more. And then I will take a little bit more price and that will take less price with fish. This is the kind of things we're starting to do, which is different from last year.

That's helpful. A question we frequently hear from investors on the private label pricing side is just who do you think is bearing the brunt of it? Is this the retailers that are being slower to drag their feet? Is this the manufacturers that are choosing to do this to the extent that you have knowledge or can share, how do we think about this?

Well, the suppliers have no choice. When they can, they will price. The thing is, though, with private label, which is why it's a difficulty, it's not an easy business to be in, it's a tender process. So it's -- you win everything or you lose everything. And obviously, the retailers are very good at that. But overall, well, these guys do need something like 5%, 6%, 7%, otherwise, they're out of business anyway, and they will restructure. So I think it's much more -- the question is much more for the retailers, and then it's going to be the price war between the hard discounters and the other guys. This being said, hard discounters for us, as such, is not a bad thing because we see that our penetration with these guys, Aldi, Lidl and the others, is increasing and with the right margin. So interestingly enough, with these guys, especially with Aldi, we have more than decent -- very comparable margin compared to -- together with the other people.

Interesting. Part of the debate right now that we hear investors is looking at the scanner data, while private label has been slower to follow on price, they've gained a little bit of share.

Yes. That's true. And we're expecting that they're going to gain market share for quite a while. Until the moment, obviously, where they're going to start to -- well, there is some time like the price gap has increased overall by 7%, 8%, 9%. So what we're going to see is, at some stage, this price gap is going to reduce, and then, obviously, the tension will reduce. At the same time, we're also going to start to increase A&P. So we don't want to take any chance.

So on that with increasing A&P, before we dive too much detail about the A&P side, how do you view share loss or how much share loss is acceptable? Obviously, as the CEO of a company, you never want to see losing share, but certainly, it's a trade-off that you have to make in this type of inflationary environment. So how do you balance share loss with taking price and managing the inflation?

Well, to your point, it's -- you don't want to see that too long, but it's very situational. All our strategy is based on what we call the Must Win Battles, which are the categories. And by the way, they might differ from one country to another. The best categories, which represent 60%, 70% of our business. Long term, we don't want to lose any market share there. So definitely, we're ready to take some -- we will be ready to take some sacrifice at some stage. But it's going to be a full -- whole game between obviously gross profit and market share. We know that from the start. And that's why it's a full process, but at the same time, you're also reconsidering some part of your supply chain, can you reduce some pieces, so that basically, you can reinvest either in A&P or in price.

During this inflationary time, we found it very interesting that investors would frequently point to, oh my god, private label share is so much higher in Europe than it is in the U.S. Like this is a real problem, no man tries to take price. But in reality, over the last 10 years, prior to 2022 when inflation was very rampant, private label share has been largely static for the last 10 years. It hasn't really changed much. Certainly, there are ebbs and flows year-to-year, but largely it's been static. Why do you think that is?

Well, again, I think it has to do with what the branded guys are doing. I mean if you're not playing the right way or you're not playing in the right way in terms of A&P, we're not coming with the right innovation. Basically, we have no right to exist, as simple as that. There is no rule that says that private label should be at 30% or 35% or 40%. If the brand guys are not doing the right thing, we will lose market share. And vice versa, obviously, we've seen some market share in private label to start to receive because basically, we're coming with the right proposition. So we've seen that in 2008, 2009, and then starting to recede again. And then -- well, I think that's our game, and I don't see any reason to change. At the same time, when you think about it, not so much in terms of, let's say, percentage, but in terms of absolute profit, retailers need us. I mean it's -- they make much more money with us than with the private label, obviously, in euro, in dollars. So they don't want to lose that piece neither.

Before we move off this topic, I want to just talk about some long-term trends here. We frequently get asked, how much does the frozen category grow in Europe and what's your expectation over the long term? As we come off of this super inflation cycle, how do you think about the health of this category over the long term? And how much it should grow going forward on the back of it?

Well, we've seen -- we're in the middle of our strat plan and we've seen the latest numbers over the last 5 years. And actually, it has grown slightly ahead of full overall. That's one thing. Second, we were talking about a lot about the private label, the hard discounter is on the rest of it. At the same time, when you see in terms of cost of living, when you have, let's say, frozen food, it's not expensive, it's convenient. More and more consumers are starting to take into account waste from that standpoint. Compared to chill, compared to fresh, it's a great proposition, and it's high quality. So what we see is -- definitely little by little, we think we're going to grow market share within food. And again, we had very interesting conversations lately with some of our retailers. We invited them for our strat plan. And they said, "Guys, well, maybe we're too shy. Take the leads. We need you." By the way, it's -- yes, the frozen food aisle is a bit boring because these windows and all these things, the freezers. But at the same time, it's a cash cow for us. It's great. It's a -- we would really hate to lose this. So definitely, they need a leader and we are the leaders. And I think we need to take even more responsibility than we are taking right now.

And you touched on this a little bit, talking about how in times of economic duress, the category does pretty well. Can you just talk about first derivative trade down and second derivative trade down? Usually, the first derivative folks go from eating out more to eating at home more. And then usually, from there, there's usually trade down within the category or across categories. Can you talk to us a little bit about where frozen sits in that equation and then also how your portfolio fits in that equation?

So I think it's good to start with a bit of perspective, starting with COVID. So with COVID, it was obvious that we, being mostly retailers, a bit of food service but mostly retailers, we would gain market share because, basically, I mean, eating from home is a great option for people, and we have a great option within this in terms of lunch and in terms of dinner. So we knew that we would lose part of what we've gained, but still, net, we've retained a good portion of what we've gained during COVID. That's one thing. Now with what's happening now, we haven't seen yet a lot of people starting to reduce the going out part. We think it's going to come, but we haven't seen that yet. Then within food, yes, frozen food is doing -- as I said, is doing well compared to other categories. Because it's -- even if it's priced, they've increased a lot, it's still less expensive and I think a little bit less than other categories. So yes, definitely. The combination is great. And I believe at some stage, if either inflation remains the same, and then people will really start to go to -- I mean, to reduce the going out; or basically at some stage, inflation we started to recede, and then we will take market share back from private label. So definitely, from that standpoint, we are confident. The question is the timing.

Now I want to pivot here now to working capital, specifically inventory, which at your opening remarks you talked a little bit about here. Can we just be a little more specific and just talk about some of the pivots that you've made in terms of species or where you're sourcing? And just remind folks how comfortable you are with securing supply of inventory for this year. Is that as much of a concern for you today as it was this time last year?

Well, last year, at the same time, I remember, we -- the question is where's the fish? My god, we need to find some alternatives. And so we have a great procurement team dedicated to fish, great experience. And so whatever was available in white fish in the world, I mean, it was obviously known to us. So we came with new categories. Quite frankly, I had no idea. Silver smelt, for example. Well -- and then we had, I think, a weekly crisis meeting with very -- I mean, it went extremely well, including supply chain, marketing, finance. And I remember, well, what are we going to do with this fish if we take this fish because, well, it will indicate are we are going to do something at some stage for this, so we decided to take. It was a sizable amount of money. So the point isn't, more fundamentally, and it's -- obviously, it was mostly fish. But even ingredients, rapeseed oil, for example, was another thing. We decided, forget about working capital at this stage. We just want to make sure that we're going to serve our customers -- our clients. That's it. So maybe analysts will not like it, so be it, but at least our consumers will like it. So that's why at the end of the day, when you see our free cash flow 65%, most of it is coming from that piece. And I'm very unapologetic about it. I think it was a bad decision to take. Now this being said, this year, what we see is, especially with the new kind of species we have, the new supply chain, we're much more confident. And so we're starting to see, obviously, a decrease of the inventory, especially in fish. So that's why we're coming back to our guidance, moving to 90%, 95% of free cash flow conversion next year -- this year.

And can you just discuss or compare and contrast the cost and quality of the fish that you're sourcing today versus perhaps a year or 2 ago? Is there any difference in quality at all? Or is there a difference in cost for you guys?

There is no difference of quality. I think the new species, for example, Pangasius is -- well, let me qualify this. We've decided to go in white fish, 98% of our fish is MSC certified. So that's -- which is basically a label that says it's sustainable fish. And when you see basically over the last 20 years under the guidance of MSC, you may say these guys are a bit slow and all these things, but they've done a very good job. They've done a very good job, and basically the stock of cod and fish in all categories, at least, has remained remarkably stable. Then you were going to farmed fish, there is another label, which is called ASC. Different KPIs, but still it's very much the same. Only 9% of the Pangasius in the world is ASC certified. Ours is 100% ASC certified. It takes some time, obviously, to make sure that we're going to make -- to have the right label and all these things. As a result, it's a bit more expensive. We believe that, over time, we're going to be able to reduce the cost. But at this stage, it's slightly -- farmed fish is for us slightly more expensive, which is fine. And we're going to come with anyway with different SKUs.

Now talking about cost, you mentioned earlier in the conversation that originally last year you thought inflation would be roughly $100 million, it actually came in at $300 million. For the folks in the audience and that may be listening to this, can you just give us a rough sense of, percentage-wise, the ballpark of what that is, who aren't as intimately familiar with your...

Well, $300 million, it's -- well, it's 15% in terms of COGS. It's 10% plus in terms of sales, $3 billion of sales.

Wow, 15%. So do you think at this point, what you experienced in the fourth quarter, inflation has roughly peaked? Obviously, knowing none of us are commodity analysts and whatnot. But as you look at things today, are we now starting to get on the backside of this inflation curve?

Well, some people are talking about deflation. And you can imagine the retailers are talking about deflation. Well, there is no deflation. Let's be clear. But definitely, we see is that the inflation is starting to be more moderate, I would put it that way. Energy is one of the things. We are -- and again, I'm going to be unapologetic about it, we decided in energy, for example, to hedge. And we took that hedge stroke of luck last year through, I think, 1 week before the Ukraine war started to break out. And we haven't hedged until, let's say, later this year. So at this stage, we start -- obviously, we made a lot of money, by the way, to the benefit of our consumers. And this year, we are there or thereabout in terms of between the hedge and the market value stage. Might go down at some stage, but energy is one thing, other components are starting to be a bit more moderate. So yes, we're expecting something which is going to be -- aside from another war, that nobody can predict.

Knock on wood. Hopefully, that doesn't happen.

Yes. But what we see is, everything being equal, yes, we think the inflation will be more moderate this year.

Now certainly, here in the U.S., the headlines that we saw coming across Europe in October and November is that European energy prices were going to spike, and that this winter is going to be a very difficult time period for all the European companies. It doesn't seem like that's quite played out as far as the headlines were concerned here in the U.S. As you think about hedging for your company, the cost and inflation that you'll see, how do you think about inflation? Because certainly, we've been all over the map with some of these spot prices, are you guys taking a more aggressive stance in trying to lock in a price for this year? Or we've seen other companies specifically talk about, you know what, we're not going to hedge as much because we think that prices could actually come down a lot further. How do you wrestle with this? And how do you guys think about it?

Well, philosophically in normal times, I like the idea that we are well hedged. And so that basically our sales team know in advance what kind of program they need to put together with the retailers. That's, let's say, the global view. I don't think we're at normal time. So we -- this year, we decided -- I would have said last year at around, let's say, June, July, August, I would have told you if it could be hedging something like 80%, I would be very pleased. At this stage of the year, we are hedged around 50%, 55%, which in of itself means that you're taking the position. Otherwise, we would be hedged. So that's an implicit answer to your question, where do you see inflation. We'll, we've decided to slow down the hedge because we see -- rightly or wrongly, we see obviously some inflation starting to get a bit milder.

That's helpful color. Now sticking with gross margins and your outlook, I believe you guys called out flattish gross margins for the year on your earnings call. Inflation is one component, certainly price is another component. You guys called out productivity savings. This is something that's a little bit new for you guys, at least as far as entering the discussion. Can you just discuss some of the efforts that you guys have made and how we should think about productivity savings going forward?

Well, we always had a program. But again, program was probably not as aggressive as it is now. Well, it could be simple things. For example, we have plastic bags in the U.K. with Peas. So Birds Eye Peas, great Peas. We had a zipper. We just removed the zipper, it's a huge saving. And at the same time, on the bag, we're coming with 70% more recyclable. So in other words, people -- consumers are okay to lose the convenience of the zip and, obviously, to do something right for the planet. That's the kind of the savings we're doing. But it's a long process involving supply chain and, obviously, the marketing and the sales guys. We want to do the right thing. But it's not limited to this kind of savings. At the same time, when you see what our network was when we started limited to 8, 9 countries, now we have 22 countries. We have something like 21 plants. We need -- we can do better in terms of how to, obviously, produce and then rationalize the whole supply chain. So it's something we're going to start as well, which is great, because it's a lot -- it's a whole avenue ahead of us in terms of savings as well.

And you talked earlier in this discussion about reinvesting behind the brands, reinvesting in your company. Are these part of the savings that you're going to use to fuel those reinvestments? And can you just share where some of these reinvestments might go?

Well, at the end of the day, it's one single P&L. So it's either you decide short term to put everything to the EBITDA or if you think you have more visibility, obviously, you're going to put part of it either in price or in A&P, as simple as that, and also in terms of people as well. Last year, our bonus program, obviously, right, for the right reason was very low, and obviously, we have also to rebuild it somewhat.

That's a good segue into my next topic that I want to discuss with you, which is A&P. I believe last year, you finished about a 1% to 1.5% below your historical rate. How do you see A&P evolving over the long term? Forget specifically this year, but where do you think that should be? What's the right rate of reinvestment for a business?

Well, in the past, before COVID, we were in the region of 4-plus percent. and that's where we want to be.

That's where you're right on.

Yes.

Got it. And then where do you think some of the key areas of your portfolio right now that you might need to increase investment, that you think you may be pulled back, not because you necessarily wanted to, but it was more supply chain constraints that you were forced into? What are some of the key areas that we can look out for that you might reinvest?

Reinvest in terms of A&P, you mean?

A&P, Exactly.

Well, the first thing is we're also trying to use the brand as a global umbrella. So part of the advertising is Birds Eye in the U.K. or Findus in, for example, in France, or iglo in Germany. So you're starting to try to develop that kind of umbrella, which is obviously less expensive. Overall, at the end of the day, we're back to the Must Win Battles concept. And Must Win Battles may vary from one country to another. Germany, it's really about fish. Fish fingers or fish stick in the U.S., it's a spinach and that's where we're going to focus. In the U.K., it's going to be poultry, it's going to be fish, it's going to be peas, it's going to be pizza as well. So it's really going to depend. That's where our money is going to go. And that hasn't changed from that standpoint.

So investors who have been along for the Nomad journey since you guys IPO-ed back in 2015 here have really become accustomed to you consistently growing EPS high single digits, if not better some years. You guys have a tremendous track record of that. On the last earnings call, you provided guidance for this upcoming year, that's actually an earnings decline.

Yes, absolutely.

That clearly must have been tough to swallow. Part of that guidance, does that assume any share repurchases? And if not, how should we think about capital allocation priorities for this upcoming year?

So to make it clear, it doesn't assume any capital allocation at this stage. So we wanted to have a -- in terms of guidance for the investors and for the analysts, something which is pure, and it's really operational. And while it comes from a very simple point, refinancing costs is the right decision in terms of flexibility. Moving from '24 to '29 in these uncertain times, definitely is the right decision. But it's $0.20, so it's a big thing. It's more than 10% of our EPS. And that piece is -- I think, operationally, the algorithm hasn't changed, but that piece has changed. So when you're taking this $0.20, which is on the delta basis this year compared to last year is around $0.14, you see immediately where you can go. And then on top of that, you're adding short term, but that's, again, I think it's the right thing to do, more money behind A&P, more money behind people. And so then you see that when you're taking these 2 elements into consideration, well, the algorithm hasn't really changed. And then back to your point in terms of capital allocation. Well, we always have been with M&A and buyback. M&A, people -- it's interesting, because people think about we are very acquisitive for our organization. Well, we are and we're not. I think we've decided to be very selective behind frozen food. We have taken the choice at this stage of our journey not to go to any food, to go to frozen food in Europe. And this, for very simple reasons, because then people, you mentioned we are a leader in frozen food in Europe. No, we are not a leader, we are the leader in frozen food in Europe. And so every time there is something up for sale, people are coming to us, which then has an impact, vis-a-vis, the private equity guys. Because the private equity has, okay, fine, these guys are there. Is it worth spending the money, the due diligence and all the rest of it to do this, I'm not sure. And then on top of that, you also have -- that's -- so in the world, I think we always have bought things between 9.5% and 10.5%. So reasonable price. And on top of that, when -- as time goes by, our journey has evolved, our business model has improved and so we're able to generate more savings, more synergies, top line and cost line. So when you think about the 10% as an average, we're always able -- we've been always able to take something like 2 points of synergies. So it's becoming a very good model as I would, but it comes with -- we have to be very selective, and that's what we've done. At the end of the day, on 5, 6 years, we've done 5 acquisitions. Well, you may say it's a lot but it's not a lot, but all of them have been -- I mean, have created value for the shareholders, which is very important. The second piece is buyback. Well, at that kind of price earning, it's the kind of thing that we will definitely more than envisage, and especially with obviously working capital going the right way and then free cash flow going the right way for us this year.

I want to come back to M&A, but before I do, I just want to close out the conversation on your sort of long-term algorithm and some targets that you had put out there previously, which is 2025 EPS of $2.30. I'm not asking you, are you changing that or anything like that, but just how should we think about EPS growth going forward after this year, as we come out of this? Is it fair or realistic to think that we get back to kind of your operating performance that you historically have performed? Barring another, a war, inflation like this, is that fair that we should expect to get back to that more normalized operating level?

Well, you may remember that within the guided -- 2025 guidance, you had the EPS, but you also had sales and EBITDA, sales of $3 billion, EBITDA of $600 million. That piece, which is purely operational, hasn't changed. So we're still geared towards getting there. So then, obviously, you have the question of the EPS as a capital allocation, you also have the refinancing. But operationally, which is really, for us, what matters is that what -- that's where we think we were going to be.

Now closing up the conversation, I want to talk about some capital allocation priorities. You mentioned M&A. Can you just help the audience or remind us, what types of qualities do you look for in an M&A target? What sort of growth and synergies? I think you mentioned 2% synergies you historically have realized. What makes an attractive target?

Well, it's -- when you see -- at the end of the day, what matters is what we've done, and then I think that's the answer. We -- for example, we acquired Ledo in Switzerland, simple. We've acquired the #1 in countries like Adriatics, like Serbia, Bosnia, Croatia. Same thing in frozen food, at the same time, we also acquired because of the same brand, fantastic brand, by the way, in ice cream. So it's all about great brands, a very strong position. And that's what we've done in the U.K., for example, with pizza, with Yorkshire pudding, which is very much an English thing, the ability to build further your range of products. And that's something we've learned from the U.K. situation, where we see that U.K. -- for example, fish is definitely in this cost of living things are starting to move from more expensive proteins like fish to other less-expensive proteins like pizza. If you have obviously the full range, that's great. So that's more and more -- so for us, M&A is going to be mostly Europe, midsized organization, midsized brand, let's say, countries or size. And obviously, great brands. Countries where we're not in yet, and there are a few countries. It's quite small, but in a few countries where we're not present yet in Europe. And then also some brands that we think could be a great complement for what we have in the same country. So that's going to be the pattern for us.

The last question I have for you, going back to capital allocation, is on share repurchases. You executed an accelerated share repurchase program back in 2020, I believe, at a price of $24.50. Your stock has unfortunately come under a lot of pressure over the last year. At what point would you consider it an attractive entry point? And better yet, not an attractive entry point, but just a good use of shareholder...

Well, you can imagine that I'm not going to tell you exactly at what -- when we're going to start to buy back shares, that -- but let's say -- well, you have to make your own judgment. You see what the price earning is at this stage. It's quite low compared to where we were, compared to the rest of the category, let's say, food. You see the track record. You see the growth profile. So, well, I would say, there should be -- everything being equal, there should be some buyback this year. I would put it that way.

That's super helpful. Thank you very much for your time today. We really appreciate it. And thank you to everyone in the audience for listening. Thank you.