Nomad Foods Limited (NOMD) Q1 2024 Earnings Report, Transcript and Summary

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 would 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 Stefan 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 a.m. Eastern Time. A 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, nonoperating M&A-related costs, acquisition purchase price adjustments, exceptional items and foreign currency translation charges and gains. Unless otherwise noted, comments from here on will refer to those adjusted numbers. With that, I will hand the call over to Stefan. Stéfan Descheemaeker: Thank you, Amit. We'd 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 for the 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%, or 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 EUR 1.75 to EUR 1.8, which implies 9% to 12% growth. With that, let me provide a few highlights on our first quarter performance. First quarter net sales increased by 1.1%, a favorable ForEx complemented organic growth of 0.3%. Quarterly volume declines moderated significantly from last quarter, accompanied with strong products 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 one-time margin headwind due to balance sheet inventory revaluation 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 EUR 122 million and adjusted EPS of EUR 0.37 per share both declined from the year ago quarter. We generated nearly EUR 49 million of adjusted free cash flow in the first quarter, a significant improvement from EUR 25 million in the year ago quarter. At the retail sales level, as reported by NielsenIQ, our volume and share trajectory continues to show significant improvement and even turned positive in many of our key markets during the quarter, including U.K. 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 to achieve it. 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 to the most relevant and loved aspects of their relationship with our iconic brands. We timed our first quarter pricing and promotion activities to maximize benefit from favorable seasonality and to align it with greater consumer interest in the frozen aisles. At the same time, our ongoing investments in data, analytics, capabilities and people helped us execute better at shelf. Enabled by our ongoing business transformation project, our center of excellence are delivering deeper data-driven insights to our local markets to optimize the promotional spend, reallocating resource to the largest potential opportunities and winning additional merchandising events in stores. Our comprehensive revenue growth management toolkit is enabling us to fine-tune our promotional frequencies and that's 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 and to our brands. 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 2/3 of our sales and an even greater share of our gross profits in the quarter. As planned, these top machine battles received a disproportionately large share of growth investments. And as expected, delivered sales growth and gross margin far in excess of our 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. The first one is a strong rebound in our Fish Fingers 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, our frozen fish brand in Italy, delivered a strong turnaround in all key performance metrics, including a material improvement in our value and volume growth trends. Our market share is rebounding along with improving rate of sale. In fact, Findus is lifting the velocity and penetration of the entire frozen fish segment by bringing consumers back to the category. Our strong performance in our largest market, U.K., is another example of our focused approach as our first quarter volumes in U.K. were up strongly, and we even gained volume share. Our positive momentum was driven by a number of strategic promotions, backed by strong media activation to drive consumer awareness. We supported our U.K. vegetable portfolio with the continuation of our sweetest pea guarantee campaign to highlight the superiority of our peas. We launched a series of influencer-led 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 iglo 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 our 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 priority of 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 greater 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 logistics network. We are reevaluating many of our co-packer relationships and reducing complexities throughout our supply chain. Our supply chain has been a key enabler for productivity 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 -- top 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, Stefan, 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 EUR 784 million. Organic sales increased by 0.3%, while favorable FX contributed 0.8% to quarterly sales. Higher price/mix contributed 2.5% during the quarter, as we lapped a year ago pricing and benefited from favorable customer and product mix. Quarterly volumes 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 profits declined by 5.9% to EUR 211 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 impacts only our first quarter margins, as we reset our inventory unit cost in January. On the underlying basis, our gross margin benefited from moderating costs, increasing productivity, higher margin mix and optimized 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 EUR 122 million in the quarter due to lower gross profits and higher operating expenses. Our adjusted operating expense increased 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 absorbed wage and other noncommodity inflation. Adjusted net income declined by 25% and adjusted earnings per share declined by EUR 0.09 to EUR 0.37, largely due to the margin dynamic described earlier. We repurchased a little less than 0.5 million of our 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 EUR 49 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 EUR 76 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 nearly EUR 30 million headwind, driven mainly by the timing of our term loan repricing. CapEx of EUR 19 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 EUR 0.15 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 and 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 EUR 1.75 to EUR 1.80 per share and adjusted free cash flow conversion in the 90% to 95% range. Our 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. At U.S. dollar-euro exchange rate as of May 1, our adjusted EPS guidance translates into $1.89 to $1.95 earnings per share and implies 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.

[Operator Instructions] Our first question comes from Rob Dickerson of Jefferies.

Stefan, just a quick question. I just heard Samy speak to 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, originally, I think the expectation was maybe sometime, 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. And I'm assuming that's just based upon kind of the timing of deployment. So I'm curious, one, is that correct? And then 2, when would you say you expect to be fully deployed in terms of your brand building initiatives? Stéfan Descheemaeker: Well, let me start with the data, Rob. I think the trajectory of the 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 trajectory is "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, yes, we should expect a volume growth, but crossing the line during H2 and being positive overall on a full-year basis. Well, you see the trajectory. By the way, we were so pleased with the way the trajectory continued in Q4. 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 the A&P last year. We really raised the game. We continued in Q4. We continued in Q1 plus something like more than 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 we are still really starting to do well. And it has, by the way, a very positive impact in the -- in our must-win battles, and I'll come back on that later. So that's the big piece. The second big piece is RGM. And the first 2 months were really promo-based, and it was deliberate. We wanted to make sure that all the consumers would come back in a milder environment in terms of cost of living, that the consumers would come back to us, and that was really the point, we wanted them to come back. And then at some stage, 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 CAGNY. 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 than, for example, our private label components. So that's the combination of what we see right now, and that's 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. I mean, clearly, I 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, applying 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 just 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.

Rob, your interpretation is absolutely correct. I mean that's exactly the pattern we're going to have. We've taken this one-time adjustment in Q1, but the dynamic is such that between effective intervention we are making on the topline and particularly with RGM and the reignition of volume growth, which is helping from a scale standpoint as well as combined with cost savings and interventions we made from a productivity standpoint is gearing us effectively together with, let's say, stabilizing moderately low inflation prices, I mean, there and potentially even declining on some category. We're getting to a point where our gross margin is intended to grow, I mean, 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. That's a bit lower in Q4, and then, leading the whole year to a growth in gross margin that would be effectively our commitment, I mean, for the year, sure.

Our next question comes from Steve Powers of Deutsche Bank.

The first question, Stefan, 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 look at the data at least that we see from the outside, it looks like the month of March was somewhat of a step-back from where you were in January, February, and perhaps that corresponds to the recalibration on commercial investments. But maybe you could talk a little bit about what you've seen through the first third of the year, month-over-month, that gives you the confidence that, that quarterly progression of improvement will continue as we go into 2Q and then 2H? Stéfan Descheemaeker: Well, I think -- to your point, I think it's -- we knew that it was -- it's never linear these things, that's very clear. I think what you need to see is the trend and also the actions that come with it. So we knew that Q1 -- P1, P2 were very solid promo-driven, in line 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 that was expected. So that piece, as you know, obviously, we're going to go month by month depending on where we stand. We're going to have higher promos, 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 the countries think and all these things. So that's very different. Now, it's really the full utilization of the flywheel between promo, one thing, A&P really coming -- starting to kick in big time now. Obviously, innovations coming back. We'll talk about innovations 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 is the projection. You're talking about the first 1/3 of the year. To your point, I think we like the trajectory. So in other words, April is -- we like what we see in terms of trajectory in P4. So that -- so yes, I think the minus 13%, minus 8%, minus 2% is what you need to see. And nothing has changed quite the contrary compared to CAGNY and what we said in terms of not only the volume, by the way, volume is absolutely key. And that's why, by the way, we give -- we never provide these elements, volume, but we know it's absolutely fundamental, so we see this. But 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 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 in promotion from here perhaps time with innovation to your point earlier or otherwise? Just how do we think about -- 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 in promotion and price.

So, Steve, 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 variable, hence the number that's you -- let's say, that Stefan has been sharing with you earlier because you are mentioning volume mix. I think we're looking at volume, and we're looking at price/mix. So we have provided actually in the addendum a reconciliation of the 2, but just so that you have the perspective there. And that enables us to really see the huge dynamics that we see around volume and the strong momentum, Stefan, 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 impact 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, let's say, large category, big countries, highly profitable businesses and that are growing. We'll have likely if you want stronger mix effect as we move forward. So what you will see, you will see this gradual positive development on the volume side. But at the same time, if you note, while pricing starts to moderate, it's not going to be 0, it's just going to be just moderating because we will 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'll be promoting through RGM, as Stefan was alluding to, and making -- leveraging all of the legs of RGM. But the one thing that is going to come across in a stronger is mix, and so your volume is starting to clearly develop positively and price/mix that will be skewed more towards mix than pricing overall.

The next question comes from Jon Tanwanteng of CJS Securities.

Stefan, 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 as we go forward? Stéfan Descheemaeker: Well, to your point, I think we are -- we know we are classifying things between A, B and C. So the must-win battles, you may remember, we started. It's -- obviously, we started with something like 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 we're doing it again, and we're much more focused again. And we have A, B and C. And let's say, A represents around 2/3 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 that's where we're doing the best, by far. The others, the B private, let's say, must-win battles are smaller, something like probably 20% of these numbers, so they're doing in line, I would say, with the rest of the business. And well, which is fine, but that's also just very reflective of where we're putting our money and in promotion, but also A&P. So in terms of A&P, it's interesting to see we're not only increasing big time the A&P, but also with this increased demand, we're focusing this increased demand to the A brand, to the A must-win battles, which is a double increase. And that's a big difference. So in a nutshell, it's not -- it doesn't mean that we're neglecting the B must-win battles. They represent around 20% of the must-win battles. And they're doing, let's say, to make it simple as in line with the rest of the business, I would put that way, the total business. So there is a difference. And that's exactly what's allocation of resources is. That's very clear.

But in the -- just to complement Stefan, I think in the context of what you're saying on the execution of the flywheel, and when we talk about speeding and accelerating the flywheel there, we indeed started the big one, the most profitable, and little by little we will have the coverage of the 25, that's very clear. So there's an element of sequencing there. And what's really important for us was to continue on the momentum we established in Q4 continuing in Q1 and for the rest of the quarter. But prioritization of the must-win battles doesn't mean we are not investing or not considering the rest, it's a very important part of the portfolio. But when you allocate your assets 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. And then both Stefan or 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 -- compared to that, how many -- how much -- what percentage 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 full-year commodities and that helps us -- let's say, keep some flexibility balancing effective 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 commodities. So that puts us in a quite good position if you want to enable us now to frankly, even manage our RGM intervention, promo intervention and margin development to allow us at the same time to reinvest and to improve our performance overall.

[Operator Instructions] The next question comes from John Baumgartner of Mizuho Securities.

Maybe first for Stefan, 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, should we expect that non-price promo also becomes less of a support and price promo increases in the mix? I guess how does demand drivers change seasonally to sustain the volume recovery that we're seeing until you get to Q4? Stéfan Descheemaeker: Well, no, I don't think there will be -- there is going to be a material change. The difference is now it's more structured than it used to be in the past, so the flywheel 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 what the situation is, trade-wise, and then, let's say, category-wise, they may decide to go with non-promo or promo. So it's very different country by country, I would put it that way. But the difference is now that it's really structured the right way. So there are countries where quite frankly non-promo is still working, absolutely. And the way it's working, I can tell you where we're using it. There are some countries I can mention, obviously, the Adriatics, for example, the non-promo side is very big. And then we're also testing in some of the countries in other regions. And we are quite pleased with the results.

Great. And then, Samy, on the operating expense line, I think Stefan 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 productivity? Was there a timing shift at all? And if it is efficiencies, what are your expectations for those to sustain for the duration of 2024?

So there has been definitely, I mean, efficiencies, I would say overall that we have seen operating, I would say, from that end. And a bit of phasing, I mean, there 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 are trying to do is synchronization of the different elements there, which is, at the same time, we synchronize RGM, A&P and as well the in-store activities, and from that standpoint, the whole flywheel is being exactly synchronized, hence, the point of the fact that the trend will be good, but then you may have effective some month-to-month, I mean, differentiation there. But from a productivity standpoint, effectively, we see now a step-up -- gradual step up across the year now as we have our programs both from, let's say, on the gross profit side with our cost-saving program from a manufacturing standpoint, but as well, we're seeing the same effect on below the line effectively on operating expense as we move forward. The ramp-up of the marketing expense, I mean, of the A&P is clear, let's say, 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 alluded to that point. And from an indirect standpoint, there's a combo of investments combined together with some productivity intervention as we look at the total year.

Our next question comes from Jon Tanwanteng of CJS Securities.

Not to focus too much on the 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 be taking anything with that? Stéfan Descheemaeker: I would say it's for those that -- it's for those -- an interesting trajectory. I am here to come up with obviously monthly results, but it's -- we are pleased with what we see. I would 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 at Adriatics, are there any puts and takes as we think about the year-over-year comparisons there? You've had 2 very strong years in a row from there. And does it make it a difficult comp? Stéfan Descheemaeker: Well, it's a great question. I would do that way. When you see Adriatic, it's a business of 2 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 during Q1 -- end of Q1, starting already in April as well. And then you also have the rest of the business, which is frozen food, as you know, which is fish, which is veg, and all these things. What we've seen in this business over the last 2 years, and it's on its way to be finalized, we deliberately have switched the business from commoditized, let's say, categories in fish, in vegetable 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 veg and all these things, which, in a nutshell, we're switching the volumes, but we're 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 -- Q4 and the Q1, little lower margin because it was more commoditized frozen food. We're changing this. First, what we see is we try to -- we're trying to expand the seasonality of ice cream. That's one thing, starting earlier, finishing later. And second, within the -- with 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, but we have better volumes, and that's what matters. And from that standpoint, what's great, by the way, is we don't have to reinvent the wheel. We just have -- the people in Serbia and Croatia, they just have to check what's available in the rest of the business. And we have great -- as you know, we have great fish fingers, we have great coated fish. We have great veg business. So that's -- in a nutshell, it's a really -- it's a quick launch. It's a list -- it's a ship and list and launch. It's innovation, but it's low-risk innovation. So we like the trajectory. So we don't think that they have reached -- that they have maxed out, quite the contrary.

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 are 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 -- let's say, translating over for the rest of the year into quite, let's say, important gross margin improvement given the dynamics that we have on the top line and on the cost as well.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I will now hand over to Stefan for closing remarks. Stéfan Descheemaeker: 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 me 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.

Ladies and gentlemen, that concludes today's event. Thank you for attending, and you may now disconnect your lines.