Notes to the Consolidated Financial Statements
1)General information
Nomad Foods Limited (the “Company” or “Nomad”) was incorporated in the British Virgin Islands on April 1, 2014. The address of Nomad’s registered office is Ritter House, Wickhams Cay II, Road Town, Tortola, VG1110 British Virgin. The Company is domiciled for tax in the United Kingdom.
Nomad Foods Limited (NYSE: NOMD) is Europe's leading frozen foods company. Nomad Foods Limited's (the “Company” or “Nomad”) portfolio of iconic brands, which includes Birds Eye, Findus, iglo, Ledo and Frikom, have been a part of consumers’ meals for generations, standing for great tasting food that is convenient, high quality and nutritious. Nomad Foods is headquartered in the United Kingdom. Additional information may be found at www.nomadfoods.com.
2)Basis of preparation
The consolidated financial statements of Nomad and its subsidiaries (the “Company” or “Nomad”) have been prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board. These consolidated financial statements are also in accordance with International Financial Reporting Standards as adopted by the European Union.
The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis using our historical experience, as well as other factors we believe appropriate under the circumstances, such as current economic conditions in light of the COVID-19 pandemic. Actual results could differ from these estimates. In preparing cash flow forecasts, management consider severe but plausible downside scenarios taking into consideration the Company's key risks, including the impacts of the COVID-19 pandemic. Having considered these risks in their assessment, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis in preparing these financial statements.
Adoption of new accounting standards - IFRS 9 'Financial Instruments'
IFRS 9 ‘Financial Instruments’ was issued in July 2014 and replaced IAS 39 ‘Financial Instruments: Recognition and Measurement.’ The Company had previously elected to continue hedge accounting under IAS 39 as was allowed by the standard. On January 1, 2021, the Company adopted hedge accounting under IFRS 9, as the hedge accounting requirements have been simplified and are more closely aligned to the Company's risk management strategy. Under IFRS 9 all existing hedging relationships qualified as continuing hedging relationships.
The Company applied IFRS 9 hedge accounting prospectively, "except for application of the cost of hedging approach". The Company has elected the cost of hedging approach for the fair value movement of all hedging instruments, whereby the movements will be recognized within equity, to the extent that they relate to the hedged item. As permitted by the standard, adjustments required as a result of adopting the cost of hedging approach, have been made to the opening Consolidated Statement of Changes in Equity. As such, prior year comparatives have not been restated. A summary of adjustments arising from application of IFRS 9 for hedge accounting as of January 1, 2021 are as follows:
| | | | | | | | | | | | | | | | | |
| Opening Balance January 1, 2021 (IAS 39) €m | | Impact of change in policy €m | | Opening Balance January 1, 2021 (IFRS 9) €m |
Cash flow hedge reserve | (24.5) | | | 2.8 | | | (21.7) | |
Cost of hedging reserve | — | | | (4.4) | | | (4.4) | |
Other reserves | (24.5) | | | (1.6) | | | (26.1) | |
| | | | | |
Translation reserve | 84.7 | | 1.6 | | 86.3 |
The Company's policy is to reduce its risk of foreign exchange movements on forecasted transactions (such as purchases of raw materials) in currencies other than the operating entity's functional currency using forward foreign exchange contracts designated as cash flow hedges. Under IFRS 9, in cash flow hedges of a forecast transaction that result in the recognition of a non-financial item (such as inventory), the amounts that were accumulated in the cash flow
hedging reserve and the cost of hedging reserve are included in the initial cost of the non-financial item upon its recognition. The Company has elected to apply this accounting policy prospectively and therefore as at January 1, 2021 any existing hedges of non-financial items (such as inventory) that were already recognized in the Consolidated Statement of Financial Position, did not result in an opening balance transfer out of equity to the non-financial item as a result of the transition to IFRS 9. For the year ended December 31, 2021, €27.6 million was recognized as deferred hedging gains transferred to the carrying value of inventory. This is not a reclassification adjustment and will not be recognized in the Consolidated Statement of Other Comprehensive Income for the period.
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 – Interest Rate Benchmark Reform (Phase 2)
In August 2020, the IASB issued Interest Rate Benchmark Reform (Phase 2), which amends other IFRS standards. The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered rate (IBOR) is replaced with an alternative nearly risk-free interest rate (RFR). The amendments in this final phase relate to practical expedient for particular changes in contractual cash flows, relief from specific hedge accounting requirements and certain disclosure requirement.
On June 24, 2021, the Company amended and restated its Senior Facilities Agreement to refinance its existing revolving credit facility of €80.0 million and replace it with a new €175.0 million facility, paying interest rate applicable to the respective drawn down currency. Per the restated Senior Facilities Agreement, the Sterling Overnight Index Average (“SONIA”) has replaced GBP LIBOR and is effective immediately if there is a drawdown on the facility. The Secured Overnight Financing Rate (“SOFR”) will replace USD LIBOR and Swiss Average Rate Overnight (“SARON”) will replace CHF LIBOR, when existing benchmark rates are replaced and borrowings are requested under the Facility.
Equally, on June 24, 2021, the Company amended and restated its Senior Facilities Agreement to refinance its existing €553.2 million senior secured term loan facility through a new 7-year term facility due 2028 (the "Senior EUR Loan"), paying interest at a rate equal to EURIBOR with a zero floor plus a margin of 2.5%. There is currently no indication of the timing of the phase-out of EURIBOR. The Company continues to assess changes in underlying markets and expects to be able to refinance its Senior EUR Loan once replacement reference rates become confirmed.
The existing senior USD loan of $916.4 million (the "Senior USD Loan") paying interest at a rate per annum equal to LIBOR (subject to a zero floor) plus 2.25% per annum has not been refinanced during 2021. The Company uses cross currency interest rate swaps to convert cash flows payable under the Senior USD Loan into €827.8 million of EUR denominated debt with a fixed rate of interest, designated as a cash flow hedge. The USD LIBOR phase out is expected to be completed by June 2023, and therefore in due course the Company will need to renegotiate the terms of our Senior Facilities Agreement with our lenders and amend the terms of linked interest rate hedging arrangements. Such an amendment is expected to be able to be achieved without material financial impact on the Company.
The Amendments are effective for annual periods beginning on or after January 1, 2021. Phase 2 amendments will require the Company to account for a change in the basis for determining the cash flows of a financial asset or a financial liability measured at amortized cost, by updating the effective interest rates as required by IBOR reform. Management continues to assess implications as a result of these amendments on the wider business. These amendments had no impact on the financial statements of the Company for the year ended December 31, 2021. The Company intends to use the practical expedients in future periods as they become applicable.
Recently Issued and Not Yet Adopted Accounting Pronouncements under IFRS
Amendments to IAS 12 - Deferred Tax related to Assets and Liabilities arising from a Single Transaction
In May 2021, the International Accounting Standards Board issued targeted amendments to IAS 12, Income Taxes. The amendments are effective for annual periods beginning on or after January 1, 2023, although earlier application is permitted. With a view to reducing diversity in reporting, the amendments will clarify that companies are required to recognize deferred taxes on transactions where both assets and liabilities are recognized, such as with leases and asset retirement (decommissioning) obligations. Based upon our current facts and circumstances, we do not expect our financial performance or disclosure to be materially affected by the application of the amended standard.
Other
The consolidated financial statements and notes are presented in the reporting currency of millions of Euros. All financial information has been rounded to the nearest €0.1 million, except where otherwise indicated.
The consolidated financial statements were approved for issuance by the Board of Directors of Nomad Foods Limited on March 2, 2022. The Directors have, at the time of approving the financial statements, a reasonable expectation that Nomad has adequate resources to continue in operational existence for the foreseeable future given the cash funds available and the current forecast cash outflows. Thus, Nomad continues to adopt the going concern basis of accounting in preparing the financial statements.
3) Accounting policies
The accounting policies set out below have, unless otherwise stated, been applied consistently. Judgments made by the Directors in the application of these accounting policies that have a significant effect on the financial statements and key sources of estimation uncertainty are discussed in Note 4.
3.1 Measurement convention
The financial statements are prepared on the historical cost basis with the exception of derivative financial instruments, business combinations, share based payments, and founder preferred shares which are stated at fair value.
3.2 Business combination
The Company uses the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interest issued by the Company. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Acquisition-related costs are expensed as incurred.
Non-controlling interests arise from business combinations in which the Company acquires less than a 100 per cent interest. Non-controlling interests are initially measured at either fair value or at the non-controlling interest’s proportionate share of the fair value of the acquiree’s identifiable net assets. Nomad determines on a transaction by transaction basis which measurement method is used.
The excess of the consideration transferred, the amount of any non-controlling interests in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets is recorded as goodwill.
Where selling shareholders have contractually agreed to indemnify Nomad Foods Limited for contingent liabilities, an indemnification asset is recognized equivalent to the fair value of the liability recognized by Nomad. The indemnification asset is deducted from consideration transferred for the business combination. The indemnification asset value will subsequently be revised where revisions are made to the value of the liability or where there are doubts over the ability to recover losses from the selling shareholders.
3.3 Basis of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions, and any unrealized income and expenses arising from intra-group transactions are eliminated. Accounting policies are applied consistently across the Company.
Subsidiaries are all entities (including structured entities) over which Nomad has control; directly or indirectly. The Company controls an entity when the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are deconsolidated from the date that control ceases.
Where the Company owns less than a 100 per cent interest in a subsidiary, a non-controlling interest is recognized. The carrying amount of non-controlling interests is increased or decreased by the non-controlling interest’s share of subsequent changes in equity and payments to the non-controlling interest. Total comprehensive income is attributed to the non-controlling interests even if this results in the non-controlling interests having a negative balance.
3.4 Foreign currency
i) Foreign currency transactions
Transactions in foreign currencies (currencies other than the functional currency of the transacting entity) are translated into the functional currency at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the foreign exchange rate ruling the financial year end. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognized in profit or loss. They are deferred in equity if they relate to qualifying cash flow hedges, qualifying net investment hedges or are attributable to part of a net investment in a foreign operation.
Non-monetary assets and liabilities in a foreign currency are translated into the functional currency to establish historical cost, using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated at foreign exchange rates ruling at the date the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss.
The revenues and expenses of foreign operations are translated at an average rate for the period (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transaction).
ii) Assets and liabilities of foreign operations
For the purposes of presenting consolidated financial statements, the assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated at foreign exchange rates ruling at the financial year ended December 31, 2021 of £1:€1.19 (December 31, 2020: £1:€1.11). The revenues and expenses of foreign operations are translated at an average rate for the period where this rate approximates to the foreign exchange rates ruling at the dates of the transactions. The average rate used for year ended December 31, 2021 is £1:€1.16 (year ended December 31, 2020: £1:€1.13, year ended December 31, 2019: £1:€1.14).
Foreign exchange gains and losses that relate to these assets and liabilities are presented in the Consolidated Statement of Profit or Loss within ‘finance income or costs’, except where hedge accounting applies.
iii) Net investment in foreign operations
Exchange differences arising from the translation of foreign operations and of any related qualifying hedges are taken directly to the translation reserve within equity. They are realized through the Consolidated Statement of Profit or Loss upon disposal of the related foreign operation.
3.5 Goodwill
Goodwill represents amounts arising on acquisition of subsidiaries. Goodwill is the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired.
Goodwill is stated at cost less any accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is not monitored below the operating segment. Goodwill is not amortized but is tested annually for impairment.
3.6 Other intangible assets
Intangible assets acquired separately are recorded at cost and those acquired as part of a business combination are recorded at fair value as at the date of acquisition.
i) Computer software
Capitalized software costs include the cost of acquired computer software licenses and costs that are directly associated with the design, construction and testing of such software where this relates to a major business system. Costs associated with identifying, sourcing, evaluating or maintaining computer software are recognized as an expense within other operating expenses as incurred.
The assets are stated at cost less accumulated amortization and impairment losses. Software costs are amortized by equal monthly installments over their estimated useful economic life of five to ten years once the software is capable of being brought into use.
ii) Brands
Our largest brands, including Birds Eye, Iglo, Findus, Ledo and Frikom are considered to have indefinite lives. This is based on the market position of the brands, the significant levels of investment in advertising and promoting the brands, and the fact that they have been established for at least 20 years. Therefore these brands are not amortized, but instead held at historical cost less provision for any impairment.
Brands that are deemed to not have an indefinite life are being amortized by equal monthly installments within other operating expenses over the course of their remaining useful economic life.
iii) Customer relationships
Long standing Food Service customer relationships have been identified as intangible assets as part of business combinations. These are deemed to not have an indefinite life and are being amortized by equal monthly installments within other operating expenses over their expected lives. The most significant of these assets were acquired as part of the Findus Acquisition in 2015 and are being amortized over 14 years.
3.7 Impairment of non-current assets
The carrying amounts of the Company’s non-current assets are reviewed annually to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. Impairment losses are recognized in the Consolidated Statement of Profit or Loss in the period in which they arise. For goodwill and assets that have an indefinite useful life an impairment review is performed at least annually.
Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the net carrying amount may not be recoverable. An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.
i) Calculation of recoverable amount
Recoverable amount is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows of the business are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
ii) Allocation of impairment losses
Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units, then to reduce the carrying amount of the other assets in the unit on a pro rata basis. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
iii) Reversals of impairment
An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is reversed when there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
3.8 Property, plant and equipment
i) Owned assets
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use.
Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.
ii) Leased assets
The Company leases various properties, equipment and cars. The Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Where a contract contains both lease and non-lease components, the Group has elected to account for the contract as a single lease.
Leases are recognized as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is classified within property, plant and equipment and is depreciated over the shorter of the asset's useful life or the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities are presented within loans and borrowings and include the net present value of expected lease payments, including those from extension options if the Company reasonably expects to exercise them. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be determined, otherwise the Company’s incremental borrowing rate is used. Right-of-use assets are measured at cost comprising the amount of the lease liability, adjusted for payments made or received before the commencement date, initial direct costs and restoration costs.
Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets primarily comprise IT equipment and small items of office furniture.
iii) Depreciation
Depreciation is charged to the Consolidated Statement of Profit or Loss on a straight line basis over the shorter of the lease term and the estimated useful lives of each part of an item of property, plant and equipment once the item is brought into use. Land is not depreciated. The estimated useful lives are as follows:
•Buildings 40 years
•Plant and equipment 5 to 14 years
•Computer equipment 3 to 5 years
The assets’ residual values and useful lives are reviewed on a frequent basis.
3.9 Inventories
Inventories are stated at the lower of cost and net realizable value. Cost is based on the weighted average principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. Inventories that are acquired through business combinations are fair valued at the time of acquisition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of direct costs and overheads based on normal operating capacity. Provision is made for slow moving, obsolete and defective inventories.
3.10 Employee benefits
i) Defined contribution plans
Obligations for contributions to defined contribution pension plans are recognized as an expense in the Consolidated Statement of Profit or Loss as incurred. Prepaid contributions are recognized as an asset to the extent that a cash refund or reduction in the future payments is available.
ii) Defined benefit plans
The Company’s net obligation in respect of defined benefit pension plans and other post-employment benefits is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. That net obligation is discounted to determine its present value. The calculation is performed by a qualified actuary using the projected unit credit method.
The current service cost of the defined benefit plan, recognized in the Consolidated Statement of Profit or Loss in staff costs included within Operating profit/(loss), except where included in the cost of an asset, reflects the increase in the defined benefit obligation resulting from employee service in the current year, benefit changes, curtailments and settlements.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in Other Comprehensive Income in the period in which they arise.
The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets. This cost is included in employee benefit expense in the Consolidated Statement of Profit or Loss.
Past service cost is recognized immediately.
iii) Share-based payment schemes
Employee benefits given through share-based payment schemes are discussed further in section 3.15 of this note.
3.11 Founder Preferred Shares
Nomad Foods issued Founder Preferred Shares to both TOMS Acquisition I LLC and Mariposa Acquisition II, LLC (collectively the “Founder Entities”) in connection with its initial public offering in April 2014. Holders of the Founder Preferred Shares are entitled to receive annual dividend amounts subject to certain performance conditions (the “Founder Preferred Shares Dividend Amount”). The instrument and its component parts were analyzed under IFRS 2. The Company intends that any future Founder Preferred Shares Annual Dividend Amount will be equity settled. Accordingly, the Founder Preferred Shares Annual Dividend Amount as of June 1, 2015, of €531.5 million (the “Founder Preferred Shares Dividend reserve”) was classified as equity and no further revaluations will be required or recorded.
Should a Founder Preferred Share Annual Dividend Amount become due and payable, the market value of any dividend paid will be deducted from the Founder Preferred Shares Dividend reserve, with any excess deducted from the accumulated profit/(deficit) reserve within equity.
3.12 Provisions
Provisions are recognized when the Company has a legal or constructive present obligation as a result of a past event and it is probable that the Company will be required to settle that obligation. Provisions are measured at the Directors’ best estimate of the expenditure required to settle the obligation at the financial year end date and are discounted to present value where the effect is material.
Where it is not possible to make a reliable estimate of the estimated financial effect of a provision, appropriate disclosure of the resulting contingent liability is made, but no provision is recognized.
3.13 Financial instruments
Financial assets and liabilities are recognized in the Company’s Statement of Financial Position when the Company becomes a party to the contractual provisions of the instrument.
i) Trade receivables
Trade receivables are amounts due from customers for goods sold when control of the products has transferred, being when the products are delivered in accordance with the contractual arrangements. At this point, there is no unfulfilled performance obligation that could affect the customer’s acceptance of the product, except for returns due to quality. The Company holds the trade receivables with the objective of collecting the contractual cash flows and so they are subsequently measured at amortized cost using the effective interest method, less any loss allowance. Since trade receivables are due within one year, this equates to initial carrying value less any loss allowance.
To assist in managing operating cash flow, we may enter into non-recourse factoring arrangements with certain receivables whereby we sell specific account receivables to one or more external financial institutions. The risks and rewards of ownership are considered to have been transferred at the point of sale. Up to the point of sale, these receivables are treated as held for sale and measured at fair value through Profit or Loss. Under the terms of the contractual arrangements, the Company may continue to collect the cash from the customer receivables sold, albeit acting solely as a collecting agent on behalf of the purchaser of receivables. Any cash received from customers which is due to be paid to the agent is presented as a financial liability in the Statement of Financial Position and as a financing activity within the Statement of Cash Flows. Factoring fees associated with the sale of factored receivables were minimal for all periods presented. See Note 18.
The Company applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. Trade receivables are grouped by days past due. Expected loss rates are based on historical credit losses experienced in each market as well as forward looking information where this is significant. Trade receivables are written off when there is no reasonable expectation of recovery. Appropriate allowances for expected credit losses and estimated irrecoverable amounts are recognized in the Consolidated Statement of Profit or Loss.
Trade receivables are presented net of associated contract liabilities, referred to as 'trade terms' as discussed further in Note 3.14 and Note 4.
ii) Cash and cash equivalents
Cash and cash equivalents comprise of cash balances and deposits that are readily convertible to a known amount of cash and are measured at amortized cost. Deposits held in money market funds are measured at fair value through Profit or Loss as the cash flows do not only represent principal and interest.
iii) Loans and borrowings
a. Valuation
Interest bearing borrowings are recognized initially at fair value less attributable transaction costs.
Subsequent to initial recognition, interest bearing loans and borrowings are stated at amortized cost with any difference between cost and redemption value being recognized in the Consolidated Statement of Profit or Loss over the expected period of the borrowings.
b. Capitalization of transaction costs
Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs.
iv) Trade payables
Trade payables are measured at initial recognition at fair value and are subsequently measured at amortized cost using the effective interest method. Since trade payables are largely due within one year, this equates to initial carrying value.
v) Derivative financial instruments and hedge accounting
Derivative financial instruments are recognized at fair value. When a derivative financial instrument is not designated in a hedge accounting relationship, all changes in its fair value are recognized immediately in the Consolidated Statement of Profit or Loss. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged. Since the adoption of IFRS 9 for hedge accounting on January 1, 2021, the Company has elected the cost of hedging approach for the fair value movement on currency basis spreads of all hedging relationships, whereby the movements will be recognized within equity, if material, to the extent that they relate to the hedged item. In cash flow hedges of a forecast transaction that result in the recognition of a non-financial item (such as inventory), the amounts that were accumulated in the cash flow hedging reserve and the cost of hedging reserve are included in the initial cost of the non-financial item upon its recognition.
The fair value of all financial derivative instruments (including but not limited to forward foreign exchange contracts, currency swaps and cross currency interest rates swaps), is determined per market standard using forward foreign exchange and interest rates at the balance sheet date, with the resulting value discounted back to present value.
Since the adoption of IFRS 9 for hedge accounting on January 1, 2021, the Company applies the hedge accounting requirements of IFRS 9 to all hedging relationships. IAS 39 was beforehand with the impact of the changes disclosed in Note 2 Basis of preparation.
a. Cash flow hedges
Where a derivative financial instrument is designated as a hedge of the cash flow of a recognized asset or liability, (including a highly probable forecast transaction) the effective part of any gain or loss on the derivative financial instrument is recognized directly in the cash flow hedging reserve, within other reserves. Any ineffective portion of the hedge is recognized immediately in the Consolidated Statement of Profit or Loss.
Since the adoption of IFRS 9 for hedge accounting on January 1, 2021, if the result of a forecasted transaction is recognition of a non-financial asset (for example inventory), the amounts that were accumulated in the cash flow hedging reserve and the cost of hedging reserve (presented together as 'Other reserves') are included in the initial cost of the non-financial item upon its recognition. For all other hedged forecasted transactions, the amounts accumulated in the hedging reserve and cost of hedging reserve are reclassified to the Consolidated Statement of Profit or Loss in the same period, or periods, in which the hedged forecasted future cash flows affect the Consolidated Statement of Profit or Loss.
When a hedging instrument expires or is sold, exercised or otherwise terminated, or the entity revokes designation of the hedge relationship but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognized when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealized gain or loss recognized in equity is recognized in the Consolidated Statement of Profit or Loss immediately.
When a hedging instrument is substantially modified, any fair value gain or loss is recognized immediately in the Consolidated Statement of Profit or Loss.
b. Net investment hedges
Foreign currency differences arising on the retranslation of the spot rate component of a financial liability designated as a hedge of a net investment in a foreign operation are recognized in Other Comprehensive Income to the extent that the hedge is effective, and are presented in the translation reserve within equity.
Since the adoption of IFRS 9 for hedge accounting on January 1, 2021, the change in fair value of the future price element of the hedging instrument (‘forward element’) is not included as part of the hedging relationships and is recognized in the Consolidated Statement of Profit or Loss immediately.
To the extent that any net investment hedge is entered into and the hedge is deemed effective, any foreign currency differences arising on the retranslation of the spot rate component of a financial liability designated as a hedge of a net investment in a foreign operation are recognized in Other Comprehensive Income, and are presented in the translation reserve within equity. To the extent that the hedge is ineffective, such differences are recognized in the Consolidated Statement of Profit or Loss. When the hedged net investment is disposed of, the relevant amount in the translation reserve is transferred to the Consolidated Statement of Profit or Loss as part of the gain or loss on disposal.
vi) Short-term investments
The Company may invest surplus cash positions in short-term investments to manage liquidity and credit risk. Short‐term investments are held within managed investment funds and are measured at fair value with all changes in fair value are recognized immediately in the Consolidated Statement of Profit or Loss.
Short-term investments are valued using inputs that are derived principally from or corroborated by observable market data.
3.14 Revenue from contracts with customers
The Company manufactures and sells a range of frozen foods to retail, wholesale and Food Service markets. Revenue is recognized when control of the products has transferred, being when the products are delivered to the customer in accordance with the contractual arrangements. At this point, there is no unfulfilled performance obligation that could affect the customer’s acceptance of the product, except for returns due to quality. A provision for product return allowances, which is estimated based upon the Company’s historical performance and management’s experience, is recorded as a reduction of sales in the same period that the revenue is recognized. Revenue excludes sales taxes and intra-company sales.
Products are often sold with variable pricing arrangements, including payment discounts, trade promotions and slotting fees. Discounts given by the Company include rebates, price reductions and incentives to customers, promotional couponing and trade communication costs. Trade promotions consist of pricing allowances, merchandising funds and customer coupons, which are offered through various programs to customers and consumers. Certain retailers require the payment of slotting fees to obtain space for the Company’s products on the retailers’ store shelves.
Where variable pricing arrangements are in place, revenue is only recognized to the extent that it is highly probable that the amount recognized is unlikely to be reversed. Accumulated experience is used to estimate and provide for the discounts. Revenue is only recognized to the extent that it is highly probable that a significant reversal will not occur. Accruals for expected pay-outs under these programs are collectively known as ‘trade terms’ and are included within trade and other receivables or within trade and other payables in the Consolidated Statement of Financial Position. No element of financing is deemed present as the sales are made in line with market practice and accruals are typically settled within twelve months of the sale.
3.15 Share based payments
The Nomad Foods Long-term Incentive Plan known as the (the "Management Share Awards"), which incorporates an annual Non-Executive Directors Restricted Stock Scheme, falls within the provisions of IFRS 2 “Share-based Payment” and awards under the Management Share Awards represent equity settled share based payments. A charge is taken to the Consolidated Statement of Profit or Loss for the difference between the fair value of the shares at grant date and the amount subscribed, spread over the vesting period.
Share based payment arrangements in which Nomad receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share based payment transactions, regardless of how the equity instruments are obtained by Nomad.
The grant date fair value of share-based payment awards granted to any Director or employee is recognized as an expense, with a corresponding increase in equity, over the period that any Director or employee becomes unconditionally entitled to the awards.
The fair value of the awards granted is measured using a valuation model, taking into account the terms and conditions upon which the awards were granted. The amount recognized as an expense is adjusted to reflect the actual number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
See Note 8(b) for further information on the Company’s share-based payment arrangements and details of the valuation model used.
3.16 Interest income
Interest income is recognized in the Consolidated Statement of Profit or Loss on an accruals basis using the effective interest method.
3.17 Expenses & Exceptional items
i) Borrowing costs
Unless capitalized as part of the cost of borrowing (see Note 3.13(iii)), borrowing costs are recognized in the Consolidated Statement of Profit or Loss in the period in which they are incurred.
ii) Exceptional items
The separate reporting of exceptional items which are presented as exceptional within the relevant Consolidated Statement of Profit or Loss category, helps provide an indication of the Company’s underlying business performance. Exceptional items have been identified and presented by virtue of their size, nature or incidence. In determining whether an event or transaction is exceptional, management considers quantitative as well as qualitative factors such as the frequency or predictability of occurrence. Exceptional items comprise restructuring costs, impairments or reversal of impairments of intangible assets, operational restructuring, integration and acquisition costs relating to new acquisitions, implementation of strategic opportunities and other significant items (see Note 7).
iii) Research and development
Expenditure on research activities is recognized in the Consolidated Statement of Profit or Loss as an expense as incurred.
3.18 Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognized in the Consolidated Statement of Profit and Loss except to the extent that it relates to items recognized in Other Comprehensive Income, in which case it is recognized within the Statement of Other Comprehensive Income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the financial year end date, and any adjustment to tax payable in respect of previous years. Where tax exposures can be quantified, an accrual for uncertain tax positions is made based on the best estimates and management’s judgments. Given the inherent uncertainties in assessing the outcomes of these exposures (which can sometimes be binary in nature), the Company could in future periods experience adjustments to these accruals.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities recognized for financial reporting purposes and the amounts used for taxation purposes on an undiscounted basis. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the financial year end date.
A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized.
3.19 Segment reporting
The Chief Operating Decision Maker (“CODM”) has been determined to be the Chief Executive Officer as he is primarily responsible for the allocation of resources to the segments and the assessment of performance of the segments.
Nomad’s operations are organized into one operating unit, "Frozen", which comprises all the brands, as well as the factories, private label business units and certain corporate overheads. The CODM primarily uses “Adjusted EBITDA”, disclosed in Note 5, as the key measure of the segment’s results. Adjusted EBITDA is EBITDA adjusted to exclude, when they occur, the impacts of exited markets, acquisition purchase price adjustments and exceptional items such as restructuring charges, goodwill and intangible asset impairment charges and other unusual or non-recurring items. In addition, we exclude other adjustments such as the impact of share based payment expenses and related employer payroll taxes, and non-operating M&A related costs, because we do not believe they are indicative of our normal operating costs, can vary significantly in amount and frequency, and are unrelated to our underlying operating performance.
EBITDA, disclosed in Note 5, is defined as profit/(loss) for the period before taxation, net financing costs, depreciation and amortization.
3.20 Onerous contracts provisions
Where the costs of fulfilling a contract exceed the economic benefits that the Company expects to receive from it, an onerous contract provision is recognized for the net unavoidable costs. In estimating the net unavoidable costs, management estimate foreseeable income that may be received and offset this against the minimum future cash outflows from fulfilling the contract. All cash flows are discounted at an appropriate discount rate.
3.21 IFRSs not yet adopted
At the date of authorization of these financial statements, except as disclosed in Note 2, there are no Standards and Interpretations relevant to the Company which are in issue but not yet effective.
4) Critical accounting estimates and judgments
The preparation of financial statements in accordance with IFRS requires the use of judgment in applying the accounting policies and estimation that affect the reported amounts of assets and liabilities and results. Actual results could differ from those estimates and the financial statements will be impacted by key judgments taken.
Key Judgments
Judgments are made in the process of applying accounting policies. Those judgments which are considered key are listed below.
a) Business Combinations
For business combinations that have a significant effect on the amounts reported in the consolidated financial statements. The Company is required to recognize separately, at the acquisition date, the identifiable assets, liabilities and contingent liabilities acquired or assumed in a business combination at their fair values. This involves judgment over whether intangible assets can be separately identified, the useful economic life of assets and in selecting an appropriate valuation methodology. Furthermore, judgment is applied in allocating business combinations to operating segments, as well as allocating Goodwill to cash generating units. Please refer to Note 14 for details of business combinations in the period.
b) Discounts and trade promotions
Management use judgment when considering when accruals for discounts and trade promotions can be released. Management makes the judgment based on the principle that accruals are reversed only to the extent that it is highly probable that a significant reversal will not occur.
c) Uncertain tax positions
Management use judgment when determining whether it is appropriate to accrue for uncertain tax positions and for how long accruals for uncertain tax positions are retained. Management considers tax laws which are in place in making that assessment determining whether it is appropriate to release.
d) Cash generating units
When performing goodwill impairment testing, management apply judgment to the allocation of goodwill to cash generating units. Management has determined goodwill is monitored at the operating segment level of “Frozen”. Please refer to Note 13 for further information.
e) Operating segments
Management apply judgment in determining the Chief Operating Decision Maker (“CODM”), and the nature and extent of the financial information which is reviewed by the CODM. Management have considered how resources are allocated in determining the single reporting and operating segment of “Frozen”. Please refer to Note 5 for further information.
Significant estimates
Information about estimates and assumptions that have significant effects on the amounts reported in the consolidated financial statements are listed below. Management have taken into account the impact and potential future impact of COVID-19 on these estimates. We will continue to assess the impact of future developments in relation to COVID-19 as it relates to estimates, especially around the carrying value of goodwill, brands and other intangibles, as well as on property, plant and equipment. In particular, we will focus on the long-term impact on the food service customer relationship intangible assets.
a) Discounts and trade promotions
Discounts given by the Company include rebates, price reductions and incentives given to customers, promotional couponing and trade communication costs. Each customer has bespoke agreements that are governed by a combination of observable and unobservable performance conditions.
Trade promotions comprise of amounts paid to retailers for programs designed to promote Company products and include pricing allowances, merchandising funds and customer coupons, which are offered through various programs to customers and consumers. The ultimate costs of these programs can depend upon retailer performance and is the subject of significant management estimates. The estimated ultimate cost of the program is based upon the programs offered, timing of those offers, estimated retailer performance based on history, management’s experience and current economic trends.
At each financial year end date, any discount or trade promotion incurred but not yet invoiced is estimated and accrued for. In certain cases, the estimate for discounts and trade promotions requires the use of forecast information for future trading periods and therefore a degree of estimation uncertainty exists. These estimates are sensitive to variances between actual results and forecasts. The estimate is based on accumulated experience.
The accruals are presented as ‘trade terms’ and offset against trade receivables due to the same customer, or as trade term payables where there is no receivable to be offset. The balance of the reduction in trade receivables for trade terms as of December 31, 2021 is disclosed in Note 18 and the balance classified as a trade term payable is disclosed in Note 22.
b) Business combinations
The Company is required to recognize separately, at the acquisition date, the identifiable assets, liabilities and contingent liabilities acquired or assumed in a business combination at their fair values. This involves an estimate of fair value of all assets and liabilities acquired. Such estimates are based on valuation techniques, which require considerable estimation in forecasting future cash flows and developing other assumptions. These estimates are based on information available on the acquisition date and assumptions that have been deemed reasonable by management. The following estimates and assumptions can materially affect our financial position and profit:
•The fair value and expected useful economic life of acquired intangible and tangible assets that are subject to depreciation or amortization in future periods.
•Future changes to the assumptions over forecast future profitability used in estimating the value of intangible assets and goodwill may result in additional expenses or income.
•Future changes to the assumptions used in estimating the value of uncertain tax positions may result in additional expenses or income.
Please refer to Note 14 for details of business combinations in the period.
c) Carrying value of goodwill and brands
Determining whether goodwill and brands are impaired requires an estimation of the value in use of the cash generating unit to which goodwill and brands have been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash generating unit and a suitable discount rate in order to calculate present value. Future cash flows for the purposes of the value in use calculation are taken from approved budgets. Details of impairment reviews including disclosures covering sensitivities are provided in Note 13.
d) Employee benefit obligation
The Group operates a number of defined benefit pension schemes and post-employment benefit schemes which are valued by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. Each scheme has an actuarial valuation performed by a specialist third party and is dependent on a series of assumptions which are estimated by management. See Note 23 for details of these assumptions and a sensitivity analysis on material assumptions.
e) Uncertain tax positions
Where tax exposures can be quantified, an accrual for uncertain tax positions is based on the Group's judgment of the most likely amount of the liability expected to be paid to the relevant tax authority; or, when there is a wide range of possible outcomes, a probability weighted average approach. Given the inherent uncertainties in assessing the outcomes of these exposures, the Company could in future periods experience adjustments to these accruals. The factors considered in estimating the accrual include the progress of discussions with the tax authorities, the complexity of respective tax legislation, valuations of assets for tax purposes and the level of documentary support for historical positions taken by previous owners. The accruals are made on the basis of a weighted average of potential outcomes.
f) Fair value of derivative financial instruments.
Note 34 includes details of the fair value of the derivative instruments that the Company holds at each balance sheet period. Management has estimated the fair value of these instruments by using valuations based on discounted cash flow calculations. These inputs may be readily observable, market corroborated, or generally unobservable inputs and are further discussed in Note 34.
5) Segment reporting
Nomad has one reporting and operating segment, "Frozen", reflected in the segment presentation below for the periods presented. The CODM primarily uses “Adjusted EBITDA”, disclosed in Note 3.19, as the key measure of the segment’s results, which is considered non-IFRS financial information.
Segment Adjusted EBITDA
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, 2021 | | Year ended December 31, 2020 | | Year ended December 31, 2019 | | | | | |
| Note | €m | | €m | | €m | | | | | |
Profit for the period | | 181.0 | | | 225.1 | | | 153.6 | | | | | | |
Taxation | | 55.7 | | | 70.4 | | | 56.7 | | | | | | |
Net financing costs | | 106.0 | | | 63.7 | | | 73.2 | | | | | | |
Depreciation and amortization | | 71.6 | | | 67.6 | | | 68.3 | | | | | | |
| | | | | | | | | | | |
Acquisition purchase price adjustments | | 8.4 | | | — | | | — | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Exceptional items | 7 | 45.3 | | | 20.6 | | | 54.5 | | | | | | |
| | | | | | | | | | | |
Other add-backs | | 18.7 | | | 19.4 | | | 25.7 | | | | | | |
Adjusted EBITDA | | 486.7 | | | 466.8 | | | 432.0 | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Acquisition purchase price adjustments relate to the reversal of the non-cash increase applied to inventory acquired in business combinations to value it at fair value as opposed to cost.
Other add-backs include the elimination of share-based payment expense and related employer payroll expense of €5.8 million (2020: €12.1 million, 2019: €22.4 million) and elimination of non-operating M&A related costs, professional fees and transaction costs of €12.9 million (2020: €7.3 million, 2019: €3.3 million). We exclude these costs because we do not believe they are indicative of our normal operating costs, can vary significantly in amount and frequency, and are unrelated to our underlying operating performance.
No information on segment assets or liabilities is presented to the CODM.
Product information
Management considers the products it sells belong to one category, being "Frozen".
Geographical information
External revenue by geography
| | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2021 | | Year ended December 31, 2020 | | Year ended December 31, 2019 | | | | | |
| €m | | €m | | €m | | | | | |
United Kingdom | 758.3 | | | 747.3 | | | 712.5 | | | | | | |
Italy | 417.9 | | | 426.3 | | | 394.1 | | | | | | |
Germany | 396.3 | | | 393.2 | | | 329.6 | | | | | | |
France | 188.6 | | | 203.8 | | | 176.6 | | | | | | |
Sweden | 148.1 | | | 158.7 | | | 175.7 | | | | | | |
Austria | 129.3 | | | 127.9 | | | 108.2 | | | | | | |
Norway | 121.7 | | | 115.6 | | | 120.4 | | | | | | |
Spain | 75.1 | | | 82.6 | | | 79.5 | | | | | | |
Rest of Europe | 371.3 | | | 260.5 | | | 227.7 | | | | | | |
Total external revenue by geography | 2,606.6 | | | 2,515.9 | | | 2,324.3 | | | | | | |
Non-current assets by geography
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| €m | | €m |
Germany | 140.0 | | | 135.5 | |
United Kingdom | 139.6 | | | 132.1 | |
Italy | 64.8 | | | 68.5 | |
Serbia | 48.5 | | | — | |
Croatia | 38.5 | | | — | |
Ireland | 34.3 | | | 31.9 | |
Norway | 31.0 | | | 30.0 | |
Sweden | 29.8 | | | 28.5 | |
Rest of Europe | 72.3 | | | 52.7 | |
Total non-current assets by geography | 598.8 | | | 479.2 | |
Non-current assets exclude deferred tax assets, goodwill and brands which are not bound to one geographical area.
6) Operating profit
Operating profit is stated after charging:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, 2021 | | Year ended December 31, 2020 | | Year ended December 31, 2019 | | | | | |
| Note | | €m | | €m | | €m | | | | | |
Staff costs | 8 | | 340.6 | | | 340.2 | | | 308.6 | | | | | | |
Depreciation of property, plant and equipment | 12 | | 63.4 | | | 59.8 | | | 59.7 | | | | | | |
Impairment of property, plant and equipment | 12 | | — | | | — | | | 0.1 | | | | | | |
Impairment of software and brands | 13 | | 1.7 | | | — | | | — | | | | | | |
Amortization of software and brands | 13 | | 8.2 | | | 7.8 | | | 8.6 | | | | | | |
Operating lease charges | | | 6.1 | | | 3.0 | | | 4.5 | | | | | | |
Exchange losses/(gains) | | | 27.0 | | | (2.8) | | | (14.6) | | | | | | |
Research & development expenditure | | | 19.2 | | | 17.6 | | | 18.9 | | | | | | |
Inventories recognized as an expense within cost of goods sold | | | 1,694.3 | | | 1,627.9 | | | 1,536.0 | | | | | | |
7) Exceptional items
Exceptional items are made up as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2021 | | Year ended December 31, 2020 | | Year ended December 31, 2019 | | | | | |
| €m | | €m | | €m | | | | | |
Supply chain reconfiguration (1) | — | | | (12.5) | | | (3.6) | | | | | | |
Findus Group integration costs (2) | — | | | — | | | 3.5 | | | | | | |
Fortenova Acquisition integration costs (3) | 3.5 | | | — | | | — | | | | | | |
Findus Switzerland integration costs (4) | 6.2 | | | 0.3 | | | — | | | | | | |
Brexit (5) | 5.3 | | | 1.6 | | | 1.6 | | | | | | |
Business Transformation program (6) | 18.8 | | | 2.3 | | | — | | | | | | |
Information Technology Transformation program (7) | 4.2 | | | — | | | — | | | | | | |
Goodfella's Pizza & Aunt Bessie's integration costs (8) | — | | | 4.0 | | | 12.5 | | | | | | |
Factory optimization (9) | 4.9 | | | 10.0 | | | 5.7 | | | | | | |
Settlement of legacy matters (10) | (2.6) | | | (2.9) | | | (9.2) | | | | | | |
Release of indemnification assets (11) | 5.0 | | | 17.8 | | | 44.0 | | | | | | |
Total exceptional items | 45.3 | | | 20.6 | | | 54.5 | | | | | | |
We do not consider these items to be indicative of our ongoing operating performance.
(1)Supply chain reconfiguration
Supply chain reconfiguration relates to activities associated with the closure of the Bjuv manufacturing facility in Sweden which ceased production in 2017. No income has been recognized in the year ended December 31, 2021 (2020: €12.5 million, 2019: €3.6 million).
In 2020, the Company signed an agreement to end its leasehold of a cold store in Sweden in 2021, which was originally due to expire in 2040. The cold store will continue to be used by the Company under a service contract once the lease has come to an end. The agreement resulted in a significant modification of a right-of-use asset and reduction in lease liabilities. The carrying value of the right-of-use asset had previously been impaired such that its value was significantly lower than that of the liabilities extinguished. Consequently, the Company recognized a gain from the transaction. As part of the transaction, the Company has become liable to fulfill certain severance arrangements in 2021 which have been provided for, the cost of which offsets a portion of the income from the modification of the lease.
In 2019, the income related to the sale of the agricultural land and the finalization of consideration received for the sale of the industrial property, which had completed in 2018.
(2)Findus Group integration costs
Following the acquisition of the Findus Group on November 2, 2015, the Company initiated a substantial integration project. Expenses presented primarily relate to the roll-out of the Nomad ERP system which completed in 2019.
(3)Fortenova Acquisition integration costs
As disclosed in Note 14, the Company completed the acquisition of the Fortenova Group’s Frozen Food Business Group on September 30, 2021, following which the Company is undertaking an integration project over the next three years. Integration expenses incurred relate to external consultancy costs, organizational structure alignment to Nomad design, systems configuration and roll-out of our controls environment to the acquired business.
(4)Findus Switzerland integration costs
As disclosed in Note 14, the Company completed the acquisition of Findus Switzerland on December 31, 2020, following which the Company commenced an integration project which is expected to complete in 2022. Integration expenses incurred and to be incurred in the future relate to external consultancy costs, organizational structure alignment to Nomad design and roll-out of the Nomad ERP system.
(5)Brexit
As part of the process of the United Kingdom exiting the European Union, commonly referred to as Brexit, the Company has incurred expenses to prepare for, and respond to, changes impacting our supply chain. Whilst an agreement with the EU was reached on December 24, 2020, border control processes remain in a period of transition. Expenses in 2021 relate to project costs and the write-off of system development costs no longer required due to changes in regulations and the Company's approach to handling Brexit-related logistic issues.
(6)Business transformation program
In 2020, the Company launched the first phase of a multi-year, enterprise-wide transformation and optimization program. Over the next few years, additional transformation phases will be implemented. The program aims to standardize, simplify and automate end-to-end business processes. This will enable key decision making and analytical capability, building a platform and organization to support future growth and provide better value for shareholders. Execution of the business transformation program will include the evaluation and implementation of a new ERP system.
Expenses in the year consist of restructuring and transformational project costs, including business technology transformation initiative costs and related professional fees.
(7)Information Technology Transformation program
In 2021, the Company launched a program to transform the Information Technology (“IT”) operating model, specifically to modernize the end-to-end technology estate to support current and future complex and evolving business needs driven by acquisitions and organic growth. Among the many changes being made, the program moves our operating model to a cloud-hosted solution, which better deploys new services to the business and end user, including application management, supporting a diverse workforce across multiple locations and languages, as well as deploying artificial Intelligence assisted tools. Other key components of the program include the Company’s cyber security services to adapt to rapidly changing threats and a change of IT service partners to enable one-off renovation and uplift of capabilities across the business.
(8)Goodfella's Pizza & Aunt Bessie's integration costs
Following the acquisition of the Goodfella’s pizza business in April 2018 and the Aunt Bessie's business in July 2018, the Company completed an integration project which finished in 2020.
(9)Factory optimization
In 2018, the Company initiated a three-year factory optimization program. The focus of the program is to develop a new suite of standard manufacturing and supply chain processes, that will provide a single network of optimized factories. The program is expected to provide a number of benefits, including an optimized supply chain infrastructure, benefits derived from the implementation of a standardized global manufacturing and planning processes, and an increased level of sustainable performance improvement. Due to delays in delivering the program across the Nomad manufacturing portfolio due to various government lockdowns and travel bans, the project has been extended for an additional year.
(10)Settlement of legacy matters
A net income of €2.6 million has been recognized associated with the release of acquired provisions relating to periods prior to acquisition by the Company. Net income of €2.9 million was recognized in the year ended December 31, 2020 associated with the release of acquired tax liabilities relating to periods prior to acquisition by the Company. Net income of €9.2 million was recognized in the year ended December 31, 2019. This includes an income of €2.7 million recognized on settlement of contingent consideration for the La Cocinera acquisition and net income of €0.7 million associated with settlements of tax audits.
(11)Release of indemnification assets
The charges for the release of indemnification assets relates to the partial release of shares held in escrow associated with the acquisition of the Findus Group in 2015, as discussed in Note 19.
Tax impact of exceptional items
The tax impact of the exceptional items amounts to a credit of €8.4 million in the year ended December 31, 2021 (year ended December 31, 2020: €3.5 million, year ended December 31, 2019: €3.1 million).
Cash flow impact of exceptional items
Included in the Consolidated Statements of Cash Flows for the year ended December 31, 2021 is €48.8 million (year ended December 31, 2020: €12.1 million, year ended December 31, 2019: €15.9 million) of cash outflows relating to exceptional items. This includes cash flows related to the above items as well as the cash impact of the settlement of provisions brought forward from previous accounting periods.
8) Payroll costs, share based payments and management incentive schemes
(a)Payroll costs
The average number of persons employed by the Company (excluding non-Executive Directors) is analyzed and set out below:
| | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2021 | | Year ended December 31, 2020 | | Year ended December 31, 2019 | | | | | |
Production | 3,310 | | | 3,043 | | | 3,308 | | | | | | |
Administration, distribution & sales | 2,193 | | | 1,647 | | | 1,448 | | | | | | |
Total number of employees | 5,503 | | | 4,690 | | | 4,756 | | | | | | |
The increase in the average number of employees in the table above for the year ended December 31, 2021 compared with the year ended December 31, 2020 is primarily due to the Fortenova Acquisition and Findus Switzerland acquisition as described in Note 14.
The table below discloses the Company’s aggregate payroll costs of these persons. Payroll costs exclude long term management incentive scheme and share based payment costs, but includes bonus costs.
| | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2021 | | Year ended December 31, 2020 | | Year ended December 31, 2019 | | | | | |
| €m | | €m | | €m | | | | | |
Wages and salaries | 266.4 | | | 276.4 | | | 250.4 | | | | | | |
Social security costs | 56.1 | | | 49.2 | | | 45.2 | | | | | | |
Other pension costs | 18.1 | | | 14.6 | | | 13.0 | | | | | | |
Total payroll costs | 340.6 | | | 340.2 | | | 308.6 | | | | | | |
(b)Share based payments
The Company's discretionary share award scheme, the LTIP, enables the Company’s Compensation Committee to make grants (“Awards”) in the form of rights over ordinary shares, to any Director, Non-Executive Director or employee of the Company. However, it is the Committee’s current intention that Awards be granted only to Directors and senior management, whilst recognizing a separate annual Restricted Stock Award for Non-Executive Directors.
All Awards are to be settled by physical delivery of shares.
Non-Executive Director Restricted Share Awards
In accordance with the Board approved independent Non-Executive Director compensation guidelines, each independent Non-Executive Director is entitled to a grant of $100,000 of restricted shares annually on the date of the annual general meeting, valued at the closing market price for such shares on this date. The restricted shares vest on the earlier of twelve months from the date of grant or the date of the Company’s next annual meeting of shareholders.
The Non-Executive Directors restricted share awards granted on June 19, 2018, which consisted of 32,172 shares at a share price of $18.07, vested on June 14, 2019 and were issued at a share price of $20.74, resulting in a €0.1 million increase in the share based compensation reserve. Of the total 44,272 number of shares vesting, 12,100 shares were held back from issue by the Company as settlement towards personal tax liabilities arising on the vested shares.
The Non-Executive Directors restricted share awards granted on June 14, 2019, which consisted of 39,370 shares at a share price of $20.32. In July 2019, in conjunction with the resignation of one of our Non-Executive Directors, 2,460 shares from this grant were vested and issued. The remaining awards vested on June 17, 2020 and were issued at a share price of $21.78. Of the total 34,447 number of shares vesting, 8,656 shares were held back from issue by the Company as settlement towards personal tax liabilities arising on the vested shares.
The Non-Executive Directors restricted share awards granted on June 17, 2020, which consisted of 32,140 shares at a share price of $21.78, vested on June 30, 2021 and were issued at a share price of $30.14, resulting in a €0.2 million increase in the share based compensation reserve. Of the total 32,140 number of shares vesting, 7,734 shares were held back from issue by the Company as settlement towards personal tax liabilities arising on the vested shares.
On June 30, 2021, after the Company's annual general meeting of shareholders, the current Non-Executive Directors were granted 24,759 restricted share award at a share price of $28.27.
The total charge for Non-Executive Director grants within the Statement of Consolidated Profit or Loss for the year ended December 31, 2021 for stock compensation awards was €0.8 million (year ended December 31, 2020: €0.7 million; year ended December 31, 2019: €0.9 million).
Director and Senior Management Share Awards
As part of its long term incentive initiatives, the Company has outstanding awards over 2,016,855 ordinary shares granted to certain members of its management team (the “Management Share Awards”) as of the following four award dates:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| January 1, 2016 Award | | January 1, 2017 Award | | January 1, 2018 Award | | January 1, 2019 Award | | January 1, 2020 Award | | January 1, 2021 Award | | Total |
Number of awards outstanding at January 1, 2021 | 1,041,953 | | | 819,873 | | | 446,575 | | | 159,561 | | | 710,438 | | | — | | | 3,178,400 | |
New awards granted in the period | — | | | — | | | — | | | — | | | — | | | 820,202 | | | 820,202 | |
Awards vested and issued in the period | (1,041,953) | | | (819,873) | | | — | | | — | | | — | | | — | | | (1,861,826) | |
Forfeitures in the period | — | | | — | | | (14,785) | | | (6,866) | | | (65,345) | | | (32,925) | | | (119,921) | |
Number of awards outstanding at December 31, 2021 | — | | | — | | | 431,790 | | | 152,695 | | | 645,093 | | | 787,277 | | | 2,016,855 | |
The 2018 award has vesting conditions based on cumulative EBITDA performance over four years and Company share price performance over two years to five years. During 2021, the Compensation Committee of the Board of Directors amended the non-market condition targets for this award due to recent acquisitions, which did not increase its incremental fair value. The share price and EBITDA performance conditions for the 2018 award are weighted 50% each per performance target.
•For the 2018 award, for the share price target, the initial two-year period was through to January 1, 2020 and the subsequent three-year period is through to January 1, 2023. For the four-year cumulative EBITDA Performance Condition, if satisfied, will vest on January 1, 2022.
For the 2019, 2020 and 2021 awards, those grants have vesting conditions based on cumulative EBITDA performance, cumulative Net Sales and Company share price performance over three years. During 2021, the Compensation Committee of the Board of Directors amended the non-market condition targets for these awards due to recent acquisitions, which did not increase their incremental fair value. In addition, the 2020 award had a holding period of one-year that has been removed from the vesting period. The 2021 award was issued late in 2021 with a performance period starting January 1, 2021.
In September 2019, 166,427 restricted share awards were granted as part of the 2019 Management Share Award. The performance period associated with the award began as of January 1, 2019. The 2019 awards have vesting conditions based on three-year cumulative EBITDA and net sales, and Company share price performance measures. One third of the total share award is assigned to each type of performance measure. All shares are subject to a holding period of an additional year and require that the participants to the scheme are still actively employed during the entire four year period, through January 1, 2023.
In January 2020, 761,979 restricted share awards were granted as part of the 2020 Management Share Award. The performance period associated with the award began on January 1, 2020. The Share awards will vest on the Company achieving a range of performance conditions including cumulative EBITDA, cumulative net sales, and share price performance measures over a three-year period. The cumulative EBITDA and Cumulative Net Sales tranches of shares are equally weighted, being worth 37.5% of the total award each. The Company Share Price Tranche is worth 25% of the total award. All shares vest, subject to satisfaction of the award conditions, on January 1, 2023.
In late 2021, 820,202 restricted share awards were granted as part of the 2021 Management Share Award. The performance period associated with the award began on January 1, 2021. The Share awards will vest on the Company achieving a range of performance conditions including cumulative EBITDA, cumulative net sales, and Company share price performance measures over a three-year period. The cumulative EBITDA and Cumulative Net Sales tranches of shares are equally weighted, being worth 37.5% of the total award each. The Share Price Tranche is worth 25% of the total award. All shares vest, subject to satisfaction of the award conditions, on January 1, 2024.
In January 2019, 85,315 restricted shares granted as part of the 2017 Management Share Awards vested based on share price performance, resulting in the issuance of 51,932 ordinary shares (net of 33,383 ordinary shares held back from issue by the Company as settlement towards personal tax liabilities arising on the vested ordinary shares).
In January 2020, 284,555 restricted shares granted as part of the 2016 Management Share Awards vested as a result of the satisfaction of the applicable Share Price Performance Condition (based on a share price of $22.37), resulting in the issuance of 163,816 ordinary shares to participants in the LTIP (net of 120,739 ordinary shares held back from issue by the Company as settlement towards personal tax liabilities arising on the vested ordinary shares).
In February 2020, 1,626,006 restricted shares granted as part of the 2016 Management Share Awards vested as a result of the satisfaction of the applicable Share Price Performance Condition (based on a share price of $19.53), resulting in the issuance of 928,042 ordinary shares to participants in the LTIP (net of 697,964 ordinary shares held back from issue by the Company as settlement towards personal tax liabilities arising on the vested ordinary shares).
In September 2020, 42,825 restricted shares granted as part of the 2018 Management Share Awards vested as a result of the satisfaction of the applicable Share Price Performance Condition (based on a share price of $25.30). Due to the timing of the vesting, the resulting issuance of 25,655 ordinary shares to participants in the LTIP (net of 17,170 ordinary shares held back from issue by the
Company as settlement towards personal tax liabilities arising on the vested ordinary shares) occurred in October 2020.
In January 2021, 1,041,953 restricted shares granted as part of the 2016 Management Share Awards vested as a result of the satisfaction of the applicable Share Price Performance Condition (based on a share price of $25.42), resulting in the issuance of 587,633 ordinary shares to participants in the LTIP (net of 454,320 ordinary shares held back from issue by the Company as settlement towards personal tax liabilities arising on the vested ordinary shares).
In January 2021, 368,154 restricted shares granted as part of the 2017 Management Share Awards vested as a result of the satisfaction of the applicable Share Price Performance Condition (based on a share price of $25.42), resulting in the issuance of 217,228 ordinary shares to participants in the LTIP (net of 150,926 ordinary shares held back from issue by the Company as settlement towards personal tax liabilities arising on the vested ordinary shares).
In February 2021, 451,719 restricted shares granted as part of the 2017 Management Share Awards vested as a result of the satisfaction of the applicable EBITDA Performance Condition (based on a share price of $25.89 at time of vesting), resulting in the issuance of 271,451 ordinary shares to participants in the LTIP (net of 180,268 ordinary shares held back from issue by the Company as settlement towards personal tax liabilities arising on the vested ordinary shares).
The stock compensation charge reported within the Consolidated Statement of Profit or Loss for the year ended December 31, 2021 related to the director and senior management share awards is €4.3 million (year ended December 31, 2020: €8.3 million: year ended December 31, 2019: €14.0 million).
The Company calculates the cost of the Management Share Awards based upon their fair value using the Monte Carlo Model, which is considered to be the most appropriate methodology considering the restricted shares only vest once the market performance conditions have been satisfied.
The inputs and assumptions underlying the Monte Carlo models for all awards outstanding as of the valuation date are now as follows:
| | | | | | | | | | | | | | | | |
| | | January 1, 2018 award | January 1, 2019 award | January 1, 2020 award | January 1, 2021 award |
Grant date price | | | $ | 16.72 | | $ | 20.15 | | $ | 22.37 | | $ | 25.42 | |
Exercise price | | | $ | — | | $ | — | | $ | — | | $ | — | |
Expected life of restricted share | | | 1.50 - 4.00 years | 4.00 years | 3.00 years | 3.00 years |
Expected volatility of the share price | | | 22.7 | % | 24.0 | % | 24.4 | % | 30.0 | % |
Dividend yield expected | | | — | % | — | % | — | % | — | % |
Risk free rate | | | 2.55 | % | 1.33 | % | 1.70 | % | 0.24 | % |
Employee exit rate | | | 14.0 | % | 14.0 | % | 27.3 | % | 14.0 | % |
EBITDA Performance Target Condition | | | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % |
The expected volatility of the share price inputs above were estimated by referencing selected quoted companies which are considered to exhibit some degree of comparability with the Company, as the Company has only been listed for approximately six years.
Based on the latest assessments of fair value and the number of shares expected to vest, the total fair values in respect of the Restricted Shares are:
•2018 award - $1.6 million (€1.3 million)
•2019 award - $1.4 million (€1.2 million)
•2020 award - $4.8 million (€4.3 million)
•2021 award - $7.0 million (€5.8 million)
Initial Director Options
In 2014, certain Non-Executive Directors were granted options (“Initial Options”) to purchase a maximum of 125,000 Ordinary Shares at an exercise price of $11.50 per ordinary share. The awards were valued at issuance and expensed during the two years ended April 1, 2016.
Throughout 2019, former Non-Executive Directors exercised 56,250 of the 125,000 initial options granted to them for €0.6 million.
In May 2020, former and current Non-Executive Directors were issued an aggregate of 49,196 shares (net of shares withheld for the settlement of taxes), exercising all the remaining initial options outstanding for €0.6 million.
9) Directors and Key Management compensation
| | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2021 | | Year ended December 31, 2020 | | Year ended December 31, 2019 | | | | | |
| €m | | €m | | €m | | | | | |
Short-term employee benefits | 2.2 | | | 3.9 | | | 2.8 | | | | | | |
| | | | | | | | | | |
Share-based payment expense | 2.4 | | | 3.5 | | | 7.6 | | | | | | |
| | | | | | | | | | |
Non-Executive Director fees | 0.3 | | | 0.3 | | | 0.4 | | | | | | |
Total Directors' and executive officers' compensation | 4.9 | | | 7.7 | | | 10.8 | | | | | | |
All significant management decision making authority is vested within the Board of Directors and the executive team, therefore key management are considered to be the Directors and executive Officers.
| | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2021 | | Year ended December 31, 2020 | | Year ended December 31, 2019 | | | | | |
Benefits are accruing to the following number of key management personnel under: | | | | | | | | | | |
Defined contribution plans | 2 | | | 2 | | | 2 | | | | | | |
Share based payment schemes | 2 | | | 2 | | | 2 | | | | | | |
10) Finance income and costs
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, 2021 | | Year ended December 31, 2020 | | Year ended December 31, 2019 | | | | | |
| | | €m | | €m | | €m | | | | | |
Interest income | | | 0.1 | | | 0.7 | | | 2.5 | | | | | | |
| | | | | | | | | | | | |
Net foreign exchange gains on translation of financial assets and liabilities | | | — | | | 4.0 | | | — | | | | | | |
Finance income | | | 0.1 | | | 4.7 | | | 2.5 | | | | | | |
| | | | | | | | | | | | |
Interest and finance charges paid/payable for lease liabilities and financial liabilities not at fair value through profit or loss (a) | | | (59.8) | | | (64.0) | | | (79.0) | | | | | | |
Cross-currency interest rate swaps: cash flow hedges, transfer from equity | | | 1.6 | | | 5.9 | | | 21.8 | | | | | | |
Net impairment loss on short-term investments | | | (8.6) | | | — | | | — | | | | | | |
| | | | | | | | | | | | |
Net pension interest costs | | | (1.7) | | | (2.7) | | | (3.8) | | | | | | |
Amortization of borrowing costs | | | (2.0) | | | (2.0) | | | (2.0) | | | | | | |
Net foreign exchange losses on translation of financial assets and liabilities | | | (4.0) | | | — | | | (3.9) | | | | | | |
| | | | | | | | | | | | |
Net fair value losses on derivatives held at fair value through profit or loss (b) | | | (13.7) | | | (5.6) | | | (8.8) | | | | | | |
Financing costs incurred in amendment of terms of debt (c) | | | (17.9) | | | — | | | — | | | | | | |
Finance costs | | | (106.1) | | | (68.4) | | | (75.7) | | | | | | |
Net finance costs | | | (106.0) | | | (63.7) | | | (73.2) | | | | | | |
(a) Includes the unwinding of discounting on lease liabilities.
(b) Net fair value losses on derivatives held at fair value through profit or loss includes a one-off non-cash charge of €7.8 million for changes to cross currency interest rate swaps as disclosed in Note 34.
(c) Charges of €17.9 million have been recognized as a consequence of the refinancing in June 2021, as disclosed in Note 34. Of this, €10.1 million relates to the extinguishment of the previous debts, including the write-off of deferred transaction costs.
11) Taxation
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, 2021 | | Year ended December 31, 2020 | | Year ended December 31, 2019 | | | | | |
| Note | | €m | | €m | | €m | | | | | |
Current tax expense | | | | | | | | | | | | |
Current tax on profits for the period | | | (117.5) | | | (44.8) | | | (66.4) | | | | | | |
Adjustments in respect of prior periods | | | 0.6 | | | (7.6) | | | — | | | | | | |
| | | (116.9) | | | (52.4) | | | (66.4) | | | | | | |
Deferred tax benefit/(expense) | | | | | | | | | | | | |
Origination and reversal of temporary differences | | | 116.3 | | | (1.2) | | | 9.7 | | | | | | |
Impact of change in tax rates | | | (55.1) | | | (16.8) | | | — | | | | | | |
| 16 | | 61.2 | | | (18.0) | | | 9.7 | | | | | | |
Total tax expense | | | (55.7) | | | (70.4) | | | (56.7) | | | | | | |
Reconciliation of effective tax rate:
| | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2021 | | Year ended December 31, 2020 | | Year ended December 31, 2019 | | | | | |
| €m | | €m | | €m | | | | | |
Profit before tax | 236.7 | | | 295.5 | | | 210.3 | | | | | | |
Tax charge at the standard UK corporation tax rate 19% (2020: 19%; 2019: 19%) | (45.0) | | | (56.1) | | | (39.9) | | | | | | |
Difference in tax rates | 22.7 | | | (18.2) | | | (11.9) | | | | | | |
Non tax deductible interest | 0.1 | | | (0.1) | | | 0.6 | | | | | | |
Other income and expenses not taxable or deductible | 2.5 | | | (0.8) | | | (1.2) | | | | | | |
Unrecognized tax assets | (1.5) | | | (6.3) | | | (0.9) | | | | | | |
Provisions for uncertainties | (52.5) | | | 35.5 | | | (3.4) | | | | | | |
Impact of change in tax rates | (55.1) | | | (16.8) | | | — | | | | | | |
Change in tax base of assets due to step-up | 72.5 | | | — | | | — | | | | | | |
Prior period adjustment | 0.6 | | | (7.6) | | | — | | | | | | |
Total tax expense | (55.7) | | | (70.4) | | | (56.7) | | | | | | |
Effective tax rates
The Company is resident in the United Kingdom for tax purposes. The effective tax rate for the year ended December 31, 2021 was 23.5% (year ended December 31, 2020: 23.8%). The change is principally caused by the release of uncertain tax positions in relation to exposures that are now time barred, offset in part by the impact of a change in tax rates on deferred tax assets and liabilities.
The Company operates in many different jurisdictions and in some of these, certain matters are under discussion with local tax authorities. These discussions are often complex and can take many years to resolve, and are in different stages with respect to assessments appeals and refunds. The Company actively seeks to manage the associated risks by proactively engaging with tax authorities and applying for Advanced Pricing Agreements where appropriate. Accruals for tax contingencies require management to make estimates and judgments with respect to the ultimate outcome of a tax audit, and actual results could vary from these estimates. Where tax exposures can be quantified, a provision is made based on best estimates and management’s judgments. Given the inherent uncertainties in assessing the outcomes of these exposures (which can sometimes be binary in nature), the Company could, in future years, experience adjustments to this provision, including releases of provisions when those exposures become time-barred.
Notwithstanding this, management believes that the Company’s position on all open matters including those in current discussion with local tax authorities is robust and that the Company is appropriately provided. As of December 31, 2021, the current tax payable of €198.5m and deferred tax assets of €128.3m includes provisions for tax uncertainties of €163.4m. As of December 31, 2020, the current tax payable of €166.2m and deferred tax assets of €113.5m included provisions for tax uncertainties of €103.9m.
The UK government announced an increase in the standard rate of corporation tax from 19% for 2021 (2020: 19%) to 25% effective from April 1, 2023, substantively enacted on May 24, 2021. The increase gave rise to a substantial one-off deferred tax expense, which is offset in part by a deferred tax benefit from the implementation of certain arrangements benefiting from one-off government incentives and other tax incentives. The financial statements for the year ended December 31, 2020 were prepared using the substantively enacted rate of corporation tax of 19%.
The tax (benefit)/expense relating to components of other comprehensive income is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Before tax | | Tax charge | | After tax |
Year ended December 31, 2021 | Note | | €m | | €m | | €m |
Remeasurement of post-employment benefit liabilities | | | (36.1) | | | 10.2 | | | (25.9) | |
Net investment hedge | | | (18.8) | | | — | | | (18.8) | |
Cash flow hedges | | | (22.6) | | | 13.6 | | | (9.0) | |
Other comprehensive (income)/loss | | | (77.5) | | | 23.8 | | | (53.7) | |
Current tax | | | | | — | | | |
Deferred tax | 16 | | | | 23.8 | | | |
| | | | | 23.8 | | | |
| | | Before tax | | Tax benefit | | After tax |
Year ended December 31, 2020 | Note | | €m | | €m | | €m |
Remeasurement of post-employment benefit liabilities | | | 27.8 | | | (8.3) | | | 19.5 | |
Net investment hedge | | | 10.1 | | | — | | | 10.1 | |
Cash flow hedges | | | 17.3 | | | (6.0) | | | 11.3 | |
Other comprehensive loss/(income) | | | 55.2 | | | (14.3) | | | 40.9 | |
Current tax | | | | | — | | | |
Deferred tax | 16 | | | | (14.3) | | | |
| | | | | (14.3) | | | |
| | | Before tax | | Tax benefit | | After tax |
Year ended December 31, 2019 | | | €m | | €m | | €m |
Remeasurement of post-employment benefit liabilities | | | 35.9 | | | (6.7) | | | 29.2 | |
Net investment hedge | | | (6.0) | | | — | | | (6.0) | |
Cash flow hedges | | | 27.3 | | | (5.6) | | | 21.7 | |
Other comprehensive loss/(income) | | | 57.2 | | | (12.3) | | | 44.9 | |
Current tax | | | | | — | | | |
Deferred tax | | | | | (12.3) | | | |
| | | | | (12.3) | | | |
12) Property, plant and equipment
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| €m | | €m |
Owned property, plant and equipment (i) | 489.2 | | | 373.2 | |
Right-of-use assets (ii) | 60.2 | | | 49.0 | |
Property, plant and equipment | 549.4 | | | 422.2 | |
(i) Owned property, plant and equipment
| | | | | | | | | | | | | | | | | | | | | | | |
| Land and buildings | | Plant and equipment | | Computer equipment | | Total |
| €m | | €m | | €m | | €m |
Cost | | | | | | | |
Balance at December 31, 2019 | 156.2 | | | 331.9 | | | 13.8 | | | 501.9 | |
Acquisitions through business combinations | 5.1 | | | 3.5 | | | — | | | 8.6 | |
Additions | 6.8 | | | 54.6 | | | 2.1 | | | 63.5 | |
| | | | | | | |
Disposals | (0.1) | | | (2.6) | | | (0.3) | | | (3.0) | |
Effect of movements in foreign exchange | (2.7) | | | (11.3) | | | (0.3) | | | (14.3) | |
Balance at December 31, 2020 | 165.3 | | | 376.1 | | | 15.3 | | | 556.7 | |
Acquisitions through business combinations | 30.5 | | | 45.0 | | | 0.5 | | | 76.0 | |
Additions | 14.8 | | | 62.8 | | | 3.5 | | | 81.1 | |
| | | | | | | |
Disposals | (0.1) | | | (5.9) | | | — | | | (6.0) | |
Effect of movements in foreign exchange | 6.2 | | | 16.2 | | | 0.4 | | | 22.8 | |
Balance at December 31, 2021 | 216.7 | | | 494.2 | | | 19.7 | | | 730.6 | |
Accumulated depreciation and impairment | | | | | | | |
Balance at December 31, 2019 | 23.0 | | | 125.0 | | | 3.9 | | | 151.9 | |
Depreciation | 7.6 | | | 33.5 | | | 3.0 | | | 44.1 | |
| | | | | | | |
Disposals | — | | | (1.8) | | | (0.3) | | | (2.1) | |
Effect of movements in foreign exchange | (1.4) | | | (8.6) | | | (0.4) | | | (10.4) | |
Balance at December 31, 2020 | 29.2 | | | 148.1 | | | 6.2 | | | 183.5 | |
Depreciation | 8.4 | | | 35.4 | | | 3.0 | | | 46.8 | |
| | | | | | | |
Disposals | — | | | (4.8) | | | — | | | (4.8) | |
Effect of movements in foreign exchange | 2.9 | | | 12.6 | | | 0.4 | | | 15.9 | |
Balance at December 31, 2021 | 40.5 | | | 191.3 | | | 9.6 | | | 241.4 | |
Net book value December 31, 2019 | 133.2 | | | 206.9 | | | 9.9 | | | 350.0 | |
Net book value December 31, 2020 | 136.1 | | | 228.0 | | | 9.1 | | | 373.2 | |
Balance at December 31, 2021 | 176.2 | | | 302.9 | | | 10.1 | | | 489.2 | |
Assets under construction
Additions for the year ended December 31, 2021 include assets under construction of €40.5 million (year ended December 31, 2020: €24.5 million).
Security
Borrowings have been provided by a syndicate of third party lenders under the terms of the Senior Facilities Agreement, (the “Syndicate”). Together with the holders of the Senior Secured Notes (the "Bond issue"), the Syndicate has security over the assets of the "Guarantor Group". The "Guarantor Group" consists of those companies which individually have more than 5% of consolidated total assets or EBITDA (subject to, and as defined in the Senior Facilities Agreement) of the Company and in total comprise more than 80% of consolidated total assets or EBITDA at any testing date.
(ii) Right-of-use assets
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| €m | | €m |
Net book value | | | |
Land and Buildings | 44.8 | | | 38.5 | |
Plant and equipment and motor vehicles | 15.3 | | | 10.3 | |
Computer equipment | 0.1 | | | 0.2 | |
Right-of-use assets | 60.2 | | | 49.0 | |
Additions to right-of-use assets during the year ended December 31, 2021 were €8.1 million. A further €19.0 million of additions were acquired through business combinations.
Lease liabilities are included within loans and borrowings in Note 21. Interest on lease liabilities is presented as a finance cost in Note 10. Payments of lease liabilities are included as a financing activity within the Statement of Cash Flows.
| | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2021 | | Year ended December 31, 2020 | | Year ended December 31, 2019 | | | | | |
| €m | | €m | | €m | | | | | |
Depreciation | | | | | | | | | | |
Land and Buildings | 10.9 | | | 10.6 | | | 10.7 | | | | | | |
Plant and equipment and motor vehicles | 5.5 | | | 4.9 | | | 5.2 | | | | | | |
Computer equipment | 0.2 | | | 0.2 | | | 0.2 | | | | | | |
Depreciation expense of right-of-use assets | 16.6 | | | 15.7 | | | 16.1 | | | | | | |
13) Goodwill and Intangibles
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill | | Brands | | Computer software | | Customer relationships | | | | Total |
| €m | | €m | | €m | | €m | | | | €m |
Cost | | | | | | | | | | | |
Balance at December 31, 2019 | 1,862.9 | | | 2,051.1 | | | 29.8 | | | 31.0 | | | | | 3,974.8 | |
Acquisitions through business combinations (restated) | 40.1 | | | 66.0 | | | 0.1 | | | — | | | | | 106.2 | |
Additions | — | | | — | | | 8.8 | | | — | | | | | 8.8 | |
| | | | | | | | | | | |
Effect of movements in foreign exchange | (0.5) | | | 5.3 | | | 0.3 | | | — | | | | | 5.1 | |
Balance at December 31, 2020 (restated) | 1,902.5 | | | 2,122.4 | | | 39.0 | | | 31.0 | | | | | 4,094.9 | |
Acquisitions through business combinations | 192.6 | | | 296.5 | | | 1.1 | | | 4.3 | | | | | 494.5 | |
Additions | — | | | — | | | 5.8 | | | — | | | | | 5.8 | |
| | | | | | | | | | | |
Disposals | — | | | — | | | (2.5) | | | — | | | | | (2.5) | |
Effect of movements in foreign exchange | 4.3 | | | 3.2 | | | (0.5) | | | — | | | | | 7.0 | |
Balance at December 31, 2021 | 2,099.4 | | | 2,422.1 | | | 42.9 | | | 35.3 | | | | | 4,599.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill | | Brands | | Computer software | | Customer relationships | | | | Total |
| €m | | €m | | €m | | €m | | | | €m |
Accumulated amortization and impairment | | | | | | | | | | | |
Balance at December 31, 2019 | — | | | 4.4 | | | 15.2 | | | 9.2 | | | | | 28.8 | |
Amortization | — | | | 1.2 | | | 4.4 | | | 2.2 | | | | | 7.8 | |
Effect of movements in foreign exchange | — | | | — | | | 0.1 | | | — | | | | | 0.1 | |
Balance at December 31, 2020 | — | | | 5.6 | | | 19.7 | | | 11.4 | | | | | 36.7 | |
Amortization | — | | | 1.2 | | | 4.6 | | | 2.4 | | | | | 8.2 | |
Impairment | — | | | — | | | 1.7 | | | — | | | | | 1.7 | |
Disposals | — | | | — | | | (1.7) | | | — | | | | | (1.7) | |
Effect of movements in foreign exchange | — | | | — | | | (0.3) | | | — | | | | | (0.3) | |
Balance at December 31, 2021 | — | | | 6.8 | | | 24.0 | | | 13.8 | | | | | 44.6 | |
Net book value December 31, 2019 | 1,862.9 | | | 2,046.7 | | | 14.6 | | | 21.8 | | | | | 3,946.0 | |
Net book value December 31, 2020 (restated) | 1,902.5 | | | 2,116.8 | | | 19.3 | | | 19.6 | | | | | 4,058.2 | |
Net book value December 31, 2021 | 2,099.4 | | | 2,415.3 | | | 18.9 | | | 21.5 | | | | | 4,555.1 | |
As disclosed in Note 14 "Acquisitions", values for the year ended December 31, 2020 have been restated for fair value adjustments related to the Findus Switzerland acquisition.
Amortization and impairment of €9.9 million (December 31, 2020: €7.8 million; December 31, 2019: €8.6 million) is included in ‘other operating expenses’ in the Consolidated Statement of Profit or Loss.
Goodwill is initially recognized based on the accounting policy for goodwill (see note 3.5) and is subsequently measured at cost less amounts provided for impairment.
The Company’s goodwill, brand and customer relationships values have been allocated to a level no larger than the identified operating segment. This represents the lowest level within the Group at which the goodwill is monitored for internal management purposes. As required by IAS 36 'Impairment of Assets', an annual review of the carrying amount of the goodwill and the indefinite life brands is carried out to identify whether there is any impairment to these carrying values. This is done by means of comparison of the carrying values to the value in use of the CGU. Value in use is calculated as the net present value of the projected risk-adjusted cash flows of each CGU.
Key assumptions
The values for the key assumptions relating to the annual review of the carrying amount of goodwill and indefinite life brands were arrived at by taking into consideration detailed historical information and comparison to external sources where appropriate, such as market rates for discount factors.
•Budgeted cash flows: the calculation of value in use has been based on the cash flow forecasts by management for 2022 to 2025. The trends in these forecasts have been extrapolated to produce a forecast cash flow for 2026. Beyond 2026 the same assumptions have been applied for future periods in the absence of longer term detailed forecasts. These plans have been prepared and approved by management, and incorporate past performance of the entities acquired in the period, historical growth rates and projections of developments in key markets.
•Revenue: projected revenues are built up with reference to markets and product platforms. They incorporate past performance, historical growth rates and projections of developments in key markets.
•Profit margins: projected margins reflect historical performance, adjusted to account for volatility, such as the impact of COVID-19.
•Capital expenditure forecast reflects expected expenditure requirements and includes an allowance for the replacement of leased right-of-use assets.
•Discount rate: a pre-tax discount rate of 6.4% (2020: 5.8%) was applied to the cash flows. This discount rate has been calculated using a capital asset pricing model using observable market data, including the share price of Nomad Foods Limited.
•Long-term growth rates: the growth rate used in the testing after the detailed forecasting period was 1.0% (2020: 1.0%). These rates do not reflect the long-term assumptions used by the Company for investment planning.
Sensitivity to changes in assumptions
Impairment was not required at either December 31, 2021, or December 31, 2020. In each case the valuations derived from the discounted cash flow model indicate a sufficient amount of headroom for which any reasonably possible change to key assumptions is unlikely to result in an impairment of the related goodwill.
14) Acquisitions
(a) Findus Switzerland
On December 31, 2020, the Company completed its acquisition of all of the share capital of Findus Switzerland for total cash consideration of €112.8 million, which produces and sells frozen food in Switzerland. The deal extends the geographical reach of this brand, complementing the existing business model.
Due to the timing of the acquisition, the valuation of the business had not been completed within the financial statements reported as at December 31, 2020, with the difference between the consideration paid and the book value of assets valued being provisionally allocated to goodwill. The Company has since completed its fair valuation exercise over the identifiable assets acquired as well as liabilities and contingent liabilities assumed, with any corresponding adjustment necessary being made to the value of goodwill recognized. Furthermore, following customary working capital adjustments, a final payment of €0.8 million has been made to the seller in 2021.
The final assessment of the assets and liabilities acquired are as follows:
| | | | | | | | | | | | | | | | | |
| As reported December 31, 2020 | | Adjustments | | As restated December 31, 2020 |
| €m | | €m | | €m |
Assets: | | | | | |
Intangible assets | 24.5 | | | 41.6 | | | 66.1 | |
Property, plant and equipment, including Right-of-use assets | 8.9 | | | — | | | 8.9 | |
Current assets | 0.2 | | | — | | | 0.2 | |
Inventories | 11.5 | | | 1.1 | | | 12.6 | |
| | | | | |
Total assets | 45.1 | | | 42.7 | | | 87.8 | |
| | | | | |
Liabilities: | | | | | |
Current liabilities | 0.3 | | | — | | | 0.3 | |
Non-current liabilities | 6.8 | | | — | | | 6.8 | |
Deferred tax liabilities | 1.6 | | | 6.4 | | | 8.0 | |
Total liabilities | 8.7 | | | 6.4 | | | 15.1 | |
| | | | | |
Total identifiable net assets acquired | 36.4 | | | 36.3 | | | 72.7 | |
| | | | | |
Total purchase consideration | 112.0 | | | 0.8 | | | 112.8 | |
| | | | | |
Total identifiable net assets acquired | (36.4) | | | (36.3) | | | (72.7) | |
| | | | | |
Goodwill | 75.6 | | | (35.5) | | | 40.1 | |
Goodwill recognized on acquisition is €40.1 million. The goodwill recognized is attributable mainly to the growth prospects for the business expected organically and operational synergies.
Restatement of prior year comparatives
The acquisition accounting was completed in 2021. As IFRS 3 requires fair value adjustments to be recorded with effect from the date of acquisition, this requires the restatement of previously reported financial results. The impact on the Statement of Financial Position as at December 31, 2020 is shown below. | | | | | | | | | | | | | | | | | |
| As reported December 31, 2020 | | Adjustments | | As restated December 31, 2020 |
| €m | | €m | | €m |
Goodwill | 1,938.0 | | | (35.5) | | | 1,902.5 | |
Intangible assets | 2,114.1 | | | 41.6 | | | 2,155.7 | |
Inventories | 343.2 | | | 1.1 | | | 344.3 | |
Deferred tax liabilities | (420.7) | | | (6.4) | | | (427.1) | |
Trade and other payables - current | (646.4) | | | (0.8) | | | (647.2) | |
Other assets and liabilities, not affected by restatement | (1,202.1) | | | — | | | (1,202.1) | |
Net assets | 2,126.1 | | | — | | | 2,126.1 | |
(b) Fortenova Acquisition
On September 30, 2021, the Company announced the completion of the acquisition of the Fortenova Group’s Frozen Food Business Group (FFBG) for total cash consideration of €640.1 million, subject to customary completion payment conditions. FFBG is a leading European frozen food portfolio operating in attractive markets new to Nomad, including Croatia, Serbia, Bosnia & Herzegovina, Hungary, Slovenia, Kosovo, North Macedonia and Montenegro. Its two anchor brands, Ledo and Frikom, have unparalleled consumer awareness and number one market share in many of these markets and offer a broad range of frozen food products including fish, fruits, vegetables, ready meals, pastry and ice cream.
The preliminary assessment of the values of assets and liabilities at the date acquisition and the consideration paid is as follows:
| | | | | | | | | |
| As reported September 30, 2021 | | | | |
| €m | | | | |
Assets: | | | | | |
Intangible assets | 301.9 | | | | | |
Property, plant and equipment, including Right-of-use assets | 95.0 | | | | | |
Trade and other receivables | 71.7 | | | | | |
Cash | 43.6 | | | | | |
Inventories | 46.9 | | | | | |
Deferred taxes | 14.8 | | | | | |
Total assets | 573.9 | | | | | |
| | | | | |
Liabilities: | | | | | |
Current liabilities | 62.1 | | | | | |
Non-current liabilities | 16.6 | | | | | |
Deferred taxes | 47.7 | | | | | |
Total liabilities | 126.4 | | | | | |
| | | | | |
Total identifiable net assets acquired | 447.5 | | | | | |
| | | | | |
Total purchase consideration | 640.1 | | | | | |
| | | | | |
Total identifiable net assets acquired | (447.5) | | | | | |
| | | | | |
Goodwill | 192.6 | | | | | |
The preliminary goodwill recognized on acquisition is €192.6 million. The goodwill recognized is attributable mainly to the growth prospects for the business expected organically and operational synergies.
If new information obtained within one year of the date of acquisition about facts and circumstances that existed at the date of acquisition is identified, then the accounting for the acquisition will be revised.
(c) Impact of acquisitions on financial statements
Acquisition related costs of €12.9 million (2020: €4.8 million) are recognized as an expense in other operating expenses.
If the Fortenova Acquisition had occurred on January 1, 2021, management estimates that the combined Company would have revenue of €2,851.7 million and profit before tax of €279.9 million for the year ended December 31, 2021.
(d) Purchase consideration - cash outflow
| | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, 2021 | | Year ended December 31, 2020 | | Year ended December 31, 2019 |
Outflow of cash for business combinations, net of cash acquired | | €m | | €m | | €m |
Cash consideration | | 640.9 | | | 113.0 | | | — | |
Less cash acquired | | (43.6) | | | (0.1) | | | — | |
Contingent consideration paid related to acquisitions | 24 | — | | | — | | | 1.5 | |
Net outflow of cash - investing activities | | 597.3 | | | 112.9 | | | 1.5 | |
15) Investments
The following are the Company's significant investments as of December 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | | |
| Activity | | Country of incorporation | | Class of shares held | | Ownership as of December 31, 2020 |
Nomad Foods Europe Holdings Limited | Holding | | England | | Ordinary | | 100% |
Nomad Foods Europe Holdco Limited | Holding | | England | | Ordinary | | 100% |
Nomad Foods Europe Finco Limited | Holding | | England | | Ordinary | | 100% |
Nomad Foods Europe Midco Limited | Holding/ Finance | | England | | Ordinary | | 100% |
Nomad Foods Bondco Plc | Finance | | England | | Ordinary | | 100% |
Nomad Foods Lux S.à.r.l. | Finance | | Luxembourg | | Ordinary | | 100% |
Nomad Foods Europe Limited | Management | | England | | Ordinary | | 100% |
Birds Eye Limited | Trading | | England | | Ordinary | | 100% |
Nomad Foods Europe Finance Limited | Finance | | England | | Ordinary | | 100% |
Birds Eye Ireland Limited | Trading | | Republic of Ireland | | Ordinary | | 100% |
Iglo Holding GmbH | Holding | | Germany | | Ordinary | | 100% |
Iglo Nederland B.V. | Trading | | Netherlands | | Ordinary | | 100% |
Iglo Belgium S.A. | Trading | | Belgium | | Ordinary | | 100% |
Iglo Portugal | Trading | | Portugal | | Ordinary | | 100% |
Iglo Austria Holdings GmbH | Holding | | Austria | | Ordinary | | 100% |
C.S.I. Compagnia Surgelati Italiana S.R.L | Trading | | Italy | | Ordinary | | 100% |
Findus Sverige Holdings AB | Holding | | Sweden | | Ordinary | | 100% |
Iglo GmbH | Trading | | Germany | | Ordinary | | 100% |
Frozen Fish International GmbH | Trading | | Germany | | Ordinary | | 100% |
Liberator Germany Newco GmbH | Property | | Germany | | Ordinary | | 100% |
Iglo Austria GmbH | Trading | | Austria | | Ordinary | | 100% |
Findus Sverige AB | Trading | | Sweden | | Ordinary | | 100% |
Frionor Sverige AB | Holding | | Sweden | | Ordinary | | 100% |
Findus Holdings France SAS | Holding | | France | | Ordinary | | 100% |
Findus France SAS | Trading | | France | | Ordinary | | 100% |
Findus Espana SLU | Trading | | Spain | | Ordinary | | 100% |
Findus Danmark A/S | Trading | | Denmark | | Ordinary | | 100% |
Findus Finland Oy | Trading | | Finland | | Ordinary | | 100% |
Findus Norge AS | Trading | | Norway | | Ordinary | | 100% |
Findus Norge Holding AS | Holding | | Norway | | Ordinary | | 100% |
| | | | | | | | | | | | | | | | | | | | | | | |
Toppfrys AB | Trading | | Sweden | | Ordinary | | 100% |
Findus Switzerland AG | Trading | | Switzerland | | Ordinary | | 100% |
LEDO plus d.o.o. | Trading | | Croatia | | Ordinary | | 100% |
INDUSTRIJA SMRZNUTE HRANE FRIKOM DOO BEOGRAD | Trading | | Serbia | | Ordinary | | 100% |
LEDO d.o.o. Čitluk | Trading | | Bosnia & Herzegovina | | Ordinary | | 100% |
IRIDA d.o.o. | Trading | | Croatia | | Ordinary | | 100% |
LEDO Jégkrém és Fagyasztott Élelmiszer Gyártó és Forgalmazó Korlátolt Felelősségű Társaság | Trading | | Hungary | | Ordinary | | 100% |
Ledo d.o.o. (LEDO, podjetje za trgovino s sladoledom, zmrznjeno hrano in storitve, d.o.o.) | Trading | | Slovenia | | Ordinary | | 100% |
Ledo d.o.o. Podgorica (Društvo Za Proizvodnju, promet roba i usluga “Ledo” d.o.o. Podgorica) | Trading | | Montenegro | | Ordinary | | 100% |
Ledo Sh.p.k. | Trading | | Kosovo | | Ordinary | | 100% |
FRIKOM BEOGRAD DOOEL Cucer Sandevo | Trading | | North Macedonia | | Ordinary | | 100% |
16) Deferred tax assets and liabilities
Recognized deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 (restated) |
| Assets | | Liabilities | | Total | | Assets | | Liabilities | | Total |
| €m | | €m | | €m | | €m | | €m | | €m |
Property, plant and equipment | 8.9 | | | (34.4) | | | (25.5) | | | 20.6 | | | (27.3) | | | (6.7) | |
Intangible assets | 33.8 | | | (382.9) | | | (349.1) | | | 0.9 | | | (384.4) | | | (383.5) | |
Employee benefits | 36.4 | | | — | | | 36.4 | | | 48.3 | | | (0.3) | | | 48.0 | |
Tax value of loss carry forwards | 40.4 | | | — | | | 40.4 | | | 24.6 | | | — | | | 24.6 | |
Derivative financial instruments | 1.7 | | | (7.0) | | | (5.3) | | | 9.3 | | | (0.1) | | | 9.2 | |
Other | 7.1 | | | (13.3) | | | (6.2) | | | 9.8 | | | (15.0) | | | (5.2) | |
Tax assets/(liabilities) | 128.3 | | | (437.6) | | | (309.3) | | | 113.5 | | | (427.1) | | | (313.6) | |
As disclosed in Note 14 "Acquisitions", values for the year ended December 31, 2020 have been restated for fair value adjustments related to the Findus Switzerland acquisition.
Deferred income tax assets are recognized for tax loss carry-forwards to the extent that the realization of the related tax benefit through future taxable profits is probable.
Deferred tax assets that the Company has not recognized in the financial statements amount to €70.4 million (December 31, 2020: €72.7 million). These deferred tax assets had not been recognized as the likelihood of recovery is not probable.
The aggregate deferred tax relating to items that have been credited directly to equity is €23.8 million (December 31, 2020: debit of €14.3 million).
Movement in deferred tax during the year:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Opening balance Jan 1, 2021 (restated) | | | | Acquired in business combinations | | Recognized in Statement of Profit or Loss | | Recognized in Other Comprehensive Income | | Movement in foreign exchange | | Closing balance Dec 31, 2021 |
| €m | | | | €m | | €m | | €m | | €m | | €m |
Property, plant and equipment | (6.7) | | | | | (2.2) | | | (17.2) | | | — | | | 0.6 | | | (25.5) | |
Intangible assets | (383.5) | | | | | (30.1) | | | 64.5 | | | — | | | — | | | (349.1) | |
Employee benefits | 48.0 | | | | | — | | | (1.2) | | | (10.2) | | | (0.2) | | | 36.4 | |
Tax value of loss carry forwards | 24.6 | | | | | — | | | 15.8 | | | — | | | — | | | 40.4 | |
Derivative financial instruments | 9.2 | | | | | — | | | (0.3) | | | (13.6) | | | (0.6) | | | (5.3) | |
Other | (5.2) | | | | | (0.6) | | | (0.4) | | | — | | | — | | | (6.2) | |
Total deferred tax | (313.6) | | | | | (32.9) | | | 61.2 | | | (23.8) | | | (0.2) | | | (309.3) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Opening balance Jan 1, 2020 | | Acquired in business combinations (restated) | | Recognized in Statement of Profit or Loss | | Recognized in Other Comprehensive Income | | Movement in foreign exchange | | Closing balance Dec 31, 2020 (restated) |
| €m | | €m | | €m | | €m | | €m | | €m |
Property, plant and equipment | (6.3) | | | (1.3) | | | 1.0 | | | — | | | (0.1) | | | (6.7) | |
Intangible assets | (356.6) | | | (6.3) | | | (20.6) | | | — | | | — | | | (383.5) | |
Employee benefits | 39.8 | | | — | | | — | | | 8.3 | | | (0.1) | | | 48.0 | |
Tax value of loss carry forwards | 20.7 | | | — | | | 3.9 | | | — | | | — | | | 24.6 | |
Derivative financial instruments | 2.9 | | | — | | | 0.3 | | | 6.0 | | | — | | | 9.2 | |
Other | (2.3) | | | (0.4) | | | (2.6) | | | — | | | 0.1 | | | (5.2) | |
Total deferred tax | (301.8) | | | (8.0) | | | (18.0) | | | 14.3 | | | (0.1) | | | (313.6) | |
As disclosed in Note 14 "Acquisitions", values for the year ended December 31, 2020 have been restated for fair value adjustments related to the Findus Switzerland acquisition.
17) Inventories
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 (restated) |
| €m | | €m |
Raw materials and consumables | 95.8 | | | 80.5 | |
Work in progress | 64.9 | | | 46.5 | |
Finished goods and goods for resale | 249.9 | | | 217.3 | |
Total inventories | 410.6 | | | 344.3 | |
As disclosed in Note 14 "Acquisitions", values for the year ended December 31, 2020 have been restated for fair value adjustments related to the Findus Switzerland acquisition.
As at December 31, 2021, €2.1 million was recognized as a basis adjustment transferred to the carrying value of inventory. This has been applied to the three inventory categories above.
During the year ended December 31, 2021, €8.3 million (year ended December 31, 2020: €8.5 million, year ended December 31, 2019: €9.0 million) was charged to the Consolidated Statement of Profit or Loss for the write down of inventories.
18) Trade and other receivables
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Current assets | €m | | €m |
Trade receivables | 182.8 | | | 141.2 | |
Prepayments and accrued income | 15.4 | | | 9.2 | |
Other receivables | 32.3 | | | 31.2 | |
Tax receivable | 4.1 | | | 3.4 | |
Total current trade and other receivables | 234.6 | | | 185.0 | |
Non-current assets | | | |
Other receivables | 8.9 | | | 1.1 | |
Total non-current trade and other receivables | 8.9 | | | 1.1 | |
Total trade and other receivables | 243.5 | | | 186.1 | |
Trade receivables, prepayments and other receivables, except for those defined as non-current, are expected to be recovered in less than 12 months. Other receivables includes VAT receivable.
The aging of trade receivables is detailed below:
| | | | | | | | | | | | | | | | | | | | |
| | Gross | | Impaired | | Net |
December 31, 2021 | | €m | | €m | | €m |
Not past due | | 343.8 | | | (0.1) | | | 343.7 | |
Past due less than 1 month | | 19.9 | | | (0.1) | | | 19.8 | |
Past due 1 to 3 months | | 5.2 | | | (0.6) | | | 4.6 | |
Past due 3 to 6 months | | 2.4 | | | (0.1) | | | 2.3 | |
Past due more than 6 months | | 5.0 | | | (2.7) | | | 2.3 | |
Sub-total | | 376.3 | | | (3.6) | | | 372.7 | |
Reduction in trade-terms | | | | | | (189.9) | |
Total trade receivables | | | | | | 182.8 | |
| | Gross | | Impaired | | Net |
December 31, 2020 | | €m | | €m | | €m |
Not past due | | 308.6 | | | (0.3) | | | 308.3 | |
Past due less than 1 month | | 20.5 | | | (0.2) | | | 20.3 | |
Past due 1 to 3 months | | 4.0 | | | (0.1) | | | 3.9 | |
Past due 3 to 6 months | | 1.1 | | | (0.1) | | | 1.0 | |
Past due more than 6 months | | 11.9 | | | (3.7) | | | 8.2 | |
Sub-total | | 346.1 | | | (4.4) | | | 341.7 | |
Reduction in trade-terms | | | | | | (200.5) | |
Total trade receivables | | | | | | 141.2 | |
Reduction in trade-terms are described in Note 4(a). Trade receivables have been provided against based on expected credit losses on positions net of trade-terms, which fall into all aging categories.
The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable. The Company does not hold any collateral as security.
Debts past due are not impaired where there are eligible trade terms deductions which can be offset against them.
For the periods covered in these financial statements, the Company has entered into facilities with third-party banks/credit providers in which the Company has sold qualifying trade debtors on a non-recourse basis. Under the terms of these agreements, the Company transferred substantially all the credit risks and control of the receivables. All factoring facilities have been cancelled during 2021. No trade receivables have been derecognized at the period end (December 31, 2020:€ nil).
Liabilities related to contracts with customers
The Company has recognized the following liabilities related to contracts with customers:
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| €m | | €m |
Trade terms liabilities reported within trade receivables | (189.9) | | | (200.5) | |
Trade terms liabilities reported within trade and other payables (Note 22) | (93.8) | | | (89.7) | |
Total trade terms liabilities | (283.7) | | | (290.2) | |
Significant changes to trade terms
No significant changes to trade terms occurred in the year ended December 31, 2021.
Revenue recognized in relation to trade terms
Trade terms relate to sales made with variable consideration and are an estimate as disclosed in Note 4(a). Revenue recognized in the year ended December 31, 2021 relating to performance obligations that were satisfied in the prior year was €18.9 million (2020: €18.0 million).
19)Indemnification assets
| | | | | | | | | | | |
| Year ended December 31, 2021 | | Year ended December 31, 2020 |
| €m | | €m |
Balance at January 1 | 15.4 | | | 35.4 | |
| | | |
| | | |
| | | |
Release of indemnified provision | (5.9) | | | (20.0) | |
Balance at December 31 | 9.5 | | | 15.4 | |
As at December 31, 2021, €7.0 million (December 31, 2020: €12.0 million) of the indemnification assets relate to the acquisition of the Findus Group in 2015 for which 342,190 shares are held in escrow and are valued at $25.39 (€22.40) (December 31, 2020: 618,099 shares valued at $25.42 (€20.69)) each. The shares placed in escrow were released in stages over a four-year period beginning January 2019 with the final release in January 2022. During 2021, 275,909 shares were released from escrow. As a consequence the indemnification asset was reduced by €5.0 million with a corresponding charge of to the Statement of Profit or Loss within the financial statements for the year ended December 31, 2021.
In January 2022, the remaining 342,190 shares were released from escrow. As a consequence the indemnification asset will be reduced by €7.0 million with a corresponding charge of to the Statement of Profit or Loss within the financial statements for the year ended December 31, 2022.
As at December 31, 2021, €2.5 million (2020: €3.4 million) of the indemnification asset relates to the Goodfella’s Pizza acquisition for several contingent liabilities that arose prior to acquisition and were recognized in the balance sheet to the same extent as the asset. During 2021, €0.9 million was released against the liabilities.
20)Cash and cash equivalents
| | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| Note | €m | | €m |
Cash and cash equivalents | | 254.0 | | | 393.1 | |
Restricted cash | | 0.2 | | | 0.1 | |
Cash and cash equivalents | | 254.2 | | | 393.2 | |
Bank overdraft | 22 | | — | | | (10.7) | |
Cash and cash equivalents per Statement of Cash Flows | | 254.2 | | | 382.5 | |
‘Cash and cash equivalents’ comprise cash balances and deposits. Restricted cash comprises money that is primarily reserved for a specific purpose and therefore not available for immediate or general business use. Bank overdrafts that are repayable on demand and form an integral part of the Company's cash management are included as a component of cash and cash equivalents for the purposes of the Statement of Cash Flows.
21)Loans and borrowings
The repayment profile of the syndicated and other loans held by the Company is as follows:
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| €m | | €m |
Current liabilities | | | |
Syndicated loans | 8.5 | | | 7.8 | |
Lease liabilities | 22.6 | | | 16.7 | |
Less deferred borrowing costs to be amortized within 1 year | (2.0) | | | (2.0) | |
Total due in less than one year | 29.1 | | | 22.5 | |
Non-current liabilities | | | |
Syndicated loans | 1,347.4 | | | 1,287.5 | |
| | | |
2024 fixed rate senior secured notes | — | | | 400.0 | |
2028 fixed rate senior secured notes | 800.0 | | | — | |
Lease liabilities | 58.3 | | | 53.7 | |
Less deferred borrowing costs to be amortized in 2-5 years | (5.7) | | | (4.9) | |
Less deferred borrowing costs to be amortized in more than 5 years | (1.7) | | | — | |
Total due after more than one year | 2,198.3 | | | 1,736.3 | |
Total borrowings | 2,227.4 | | | 1,758.8 | |
Syndicated loans includes the Senior U.S. Dollar debt of $916.4 million (€808.6 million) (the “Senior USD Loan”) and the Senior EUR debt of €553.2 million (the "Senior EUR Loan"), repayable in May 2024 and May 2028 respectively. The Senior USD Loan includes an annual amortization repayment, equivalent to 1.0% of the original issuance value or $9.6 million (€8.5 million) in May each year until maturity. The Senior EUR Loan is repayable only upon maturity. As required under the Senior Facilities Agreement, the Company is also required to undertake an annual excess cash flow calculation whereby additional principal could be repaid.
On June 24, 2021, the Company through its indirect, wholly-owned subsidiary, Nomad Foods Bondco Plc, repaid the €400.0 million 3.25% senior secured notes due 2024 and completed a private offering of €750.0 million aggregate principal amount of 2.5% senior secured notes due June 24, 2028. In addition, on July 9, 2021 the Company announced that Nomad Foods Bondco Plc completed a further private offering of €50.0 million aggregate principal amount of additional 2.5% senior secured notes due 2028, representing a tack-on to the €750.0 million aggregate principal amount of senior secured notes due 2028 issued on June 24, 2021, and issued at a price of €100.75 (together the “Notes”).
Interest on the Notes accrue from June 24, 2021 (being the original date of issuance) and are payable semi-annually in arrears on January 15 and July 15, commencing on January 15, 2022. The Notes are guaranteed on a senior basis by the Company and certain subsidiaries thereof. This transaction was accounted for as an extinguishment of the existing Notes and previously capitalized eligible transaction costs were written-off to the Statement of Comprehensive Income, as disclosed in Note 10. Eligible transaction costs on the new Notes of €4.0 million were capitalized and will be amortized over the life of the debt.
On June 24, 2021, the Company amended and restated the Senior Facilities Agreement to refinance its existing €553.2 million senior secured term loan facility originally due in May 2024, through a new 7-year term facility due June 2028 (the "Senior EUR Loan"), paying interest at a rate equal to EURIBOR with a zero floor plus a margin of 2.5%. This transaction was accounted for as an extinguishment of the existing debt and previously capitalized eligible transaction costs were written-off to the Statement of Comprehensive Income, as disclosed in Note 10. On the new Senior EUR Loan, eligible transaction costs of €3.8 million were capitalized and will be amortized over the life of the debt.
Under the refinancing, the existing revolving credit facility of €80.0 million due 2023, was also replaced with a new €175.0 million facility (the "Revolving Credit Facility") available until June 2026 with an applicable margin of 2.25% per annum that may be adjusted subject to a leverage ratchet. The Revolving Credit Facility may be utilized to support working capital requirements, including letters of credit and bank guarantees. The structure of the Revolving Credit Facility now also includes a pricing structure linked to environmental impact metrics during the life of the facility, and by doing so demonstrates further commitment to the Company’s sustainability strategy by incorporating ESG target KPIs covering areas of sourcing, packaging and carbon emissions.
Charges of €17.9 million have been recognized as a consequence of the refinancing activities in 2021. Of this, €10.1 million relates to the extinguishment of the previous debts, including the write-off of deferred transaction costs.
As at December 31, 2021 €2.8 million (December 31, 2020: €16.1 million) has been utilized for issuance of letters of credit and bank guarantees.
Guarantees and secured assets
The Senior Facility Agreement that governs the Company’s Senior debt, establishes security over the assets of the “Guarantor Group”. The Guarantor Group consists of those companies that individually have more than 5% of consolidated total assets or EBITDA (subject to the terms of the Senior Facilities Agreement) of the Company and in total comprise more than 80% of consolidated total assets or EBITDA at any testing date.
The Senior Facilities Agreement includes an excess cash flow calculation whereupon an amount of principal shall be repaid based upon terms including cash generated during the year and leverage. In 2021 the amount repaid was nil relating to the calculation performed at the end of 2020. Based on the calculation performed for December 31, 2021, there will be no excess cash flow repayment in 2022.
In connection with its pension scheme, Findus Sverige AB, a 100% owned subsidiary, is required to obtain credit insurance with PRI Pensionsgaranti (“PRI”), a credit insurance company that provides insurance annually against the risk of a sponsoring company’s insolvency. In connection with such credit insurance, as at December 31, 2021 Findus Sverige AB has granted floating charges over certain assets in favor of PRI in an amount of SEK 300 million (€29.3 million) (December 31, 2020: €29.8 million) and Nomad Foods Limited has issued a parent guarantee to PRI which will not exceed SEK 640 million (€62.4 million) (December 31, 2020: SEK 450 million (€44.7 million)).
22)Trade and other payables
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 (restated) |
Current liabilities | €m | | €m |
Trade payables | 413.2 | | | 363.7 | |
Accruals and deferred income | 120.4 | | | 134.5 | |
Trade terms payable | 93.8 | | | 89.7 | |
Social security and other taxes | 24.6 | | | 24.1 | |
Other payables | 20.3 | | | 21.2 | |
Financial payables | 19.7 | | | 3.3 | |
Bank overdrafts | — | | | 10.7 | |
Total current trade and other payables | 692.0 | | | 647.2 | |
Non-current liabilities | | | |
Accruals and deferred income | 1.8 | | | 2.2 | |
Total non-current trade and other payables | 1.8 | | | 2.2 | |
Total trade and other payables | 693.8 | | | 649.4 | |
As disclosed in Note 14 "Acquisitions", values for the year ended December 31, 2020 have been restated for fair value adjustments related to the Findus Switzerland acquisition.
The Company has implemented a Supply Chain Financing (“SCF”) program for its suppliers. The principal purpose of these arrangements is to provide the supplier with the option to access liquidity earlier through the sale of its receivables due from the Company to a bank or other financial institution prior to their due date. Management has determined that the Company’s payables to these suppliers have neither been extinguished nor have the liabilities been significantly modified by these arrangements. The value of amounts payable, invoice due dates and other terms and conditions applicable, from the Company’s perspective, remain unaltered, with only the ultimate payee being changed. At December 31, 2021, there was no material usage of the programs (December 31, 2020: nil). The cash outflows in respect of these arrangements will be recognized within operating cash flows.
23)Employee benefits
The Company operates defined benefit plans as well as defined contribution plans.
i.Defined contribution plans
The total expense relating to defined contribution plans for the year ended December 31, 2021 was €10.2 million (year ended December 31, 2020: €8.3 million, year ended December 31, 2019: €9.0 million)
ii.Defined benefit plans
The Company operates partially funded defined benefit pension plans in Germany and Austria, an unfunded defined benefit pension plan in Sweden and defined benefit indemnity arrangements in Italy and Austria. In addition, pension benefits in Switzerland are met via a contract with a collective foundation that offers a fully insured solution to provide a contribution-based cash balance retirement plan, which is classified as a defined benefit plan. In addition, an unfunded post-retirement medical plan is operated in Austria. In Germany and Italy, long term service awards are in operation and various other countries provide other employee benefits.
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| €m | | €m |
Net employee benefit obligations-Germany | 149.3 | | | 181.2 | |
Net employee benefit obligations-Sweden | 70.3 | | | 74.1 | |
Net employee benefit obligations-Austria | 5.5 | | | 5.6 | |
Net employee benefit obligations-Switzerland | 5.8 | | | 6.6 | |
Net employee benefit obligations-Italy | 4.6 | | | 4.7 | |
Net employee benefit obligations-total of other countries | 8.7 | | | 4.0 | |
Total net employee benefit obligations | 244.2 | | | 276.2 | |
The net obligation of €8.7 million (December 31, 2020: €4.0 million) in respect of other countries is the aggregate of a number of different types of minor schemes, each one not being considered individually material.
The amount included in the Statement of Financial Position arising from the Company’s obligations in respect of its defined benefit retirement plans and other post-employment benefits is as follows:
| | | | | | | | | | | | | | | | | |
| Defined benefit retirement plans | | Post-employment medical benefits and other benefits | | Total |
December 31, 2021 | €m | | €m | | €m |
Present value of unfunded employee benefit obligations | 77.5 | | | 11.1 | | | 88.6 | |
Present value of funded employee benefit obligations | 264.0 | | | — | | | 264.0 | |
Subtotal present value of employee benefit obligations | 341.5 | | | 11.1 | | | 352.6 | |
Fair value of plan assets | (108.4) | | | — | | | (108.4) | |
Recognized liability for net employee benefit obligations | 233.1 | | | 11.1 | | | 244.2 | |
| | | | | | | | | | | | | | | | | |
| Defined benefit retirement plans | | Post-employment medical benefits and other benefits | | Total |
December 31, 2020 | €m | | €m | | €m |
Present value of unfunded employee benefit obligations | 79.6 | | | 9.0 | | | 88.6 | |
Present value of funded employee benefit obligations | 285.5 | | | — | | | 285.5 | |
Subtotal present value of employee benefit obligations | 365.1 | | | 9.0 | | | 374.1 | |
Fair value of plan assets | (97.9) | | | — | | | (97.9) | |
Recognized liability for net employee benefit obligations | 267.2 | | | 9.0 | | | 276.2 | |
Reconciliation from the opening balances to the closing balances for the net employee benefit obligation and its components, including the amounts recognized in the Consolidated Statement of Profit or Loss and the Consolidated Statement of Comprehensive Income:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Present value of defined benefit obligation | | Fair value of plan assets | | Net defined benefit obligation |
| 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
| €m | | €m | | €m | | €m | | €m | | €m |
Balance at January 1 | 374.1 | | | 323.9 | | | (97.9) | | | (86.4) | | | 276.2 | | | 237.5 | |
Included in the Consolidated Statement of Profit or Loss | | | | | | | | | | | |
Current service cost | 7.9 | | | 6.6 | | | — | | | — | | | 7.9 | | | 6.6 | |
Interest cost (income) | 2.2 | | | 3.7 | | | (0.5) | | | (1.0) | | | 1.7 | | | 2.7 | |
| 10.1 | | | 10.3 | | | (0.5) | | | (1.0) | | | 9.6 | | | 9.3 | |
Included in the Consolidated Statement of Comprehensive Income | | | | | | | | | | | |
Actuarial (gain) loss arising from: | | | | | | | | | | | |
–demographic assumptions | (1.5) | | | — | | | — | | | — | | | (1.5) | | | — | |
–financial assumptions | (26.8) | | | 29.1 | | | — | | | — | | | (26.8) | | | 29.1 | |
–experience adjustment | 1.8 | | | (0.8) | | | — | | | — | | | 1.8 | | | (0.8) | |
Return on plan assets, excluding interest income | — | | | — | | | (9.6) | | | (0.4) | | | (9.6) | | | (0.4) | |
Exchange adjustments | (0.3) | | | 2.8 | | | (0.6) | | | — | | | (0.9) | | | 2.8 | |
| (26.8) | | | 31.1 | | | (10.2) | | | (0.4) | | | (37.0) | | | 30.7 | |
Other | | | | | | | | | | | |
Acquired through business combinations | 3.5 | | | 18.4 | | | — | | | (11.8) | | | 3.5 | | | 6.6 | |
Contributions by employer | — | | | — | | | (1.2) | | | (0.5) | | | (1.2) | | | (0.5) | |
Contributions by members | 0.8 | | | 0.4 | | | (0.8) | | | (0.5) | | | — | | | (0.1) | |
Benefits paid | (9.1) | | | (10.0) | | | 2.2 | | | 2.7 | | | (6.9) | | | (7.3) | |
| (4.8) | | | 8.8 | | | 0.2 | | | (10.1) | | | (4.6) | | | (1.3) | |
Balance at December 31 | 352.6 | | | 374.1 | | | (108.4) | | | (97.9) | | | 244.2 | | | 276.2 | |
Current service cost is allocated between cost of sales and other operating expenses. Interest on net employee benefit obligation is disclosed in net financing costs.
The cumulative amount of actuarial losses recognized is as follows:
| | | | | | | | | | | | | | |
| | Year ended December 31, 2021 | | Year ended December 31, 2020 |
| | €m | | €m |
Cumulative amount of actuarial losses recognized in Consolidated Statement of Comprehensive Income | | 40.5 | | | 77.5 | |
The fair value of plan assets, all at quoted prices are as follows:
| | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| | €m | | €m |
Equities | | 32.7 | | | 24.5 | |
Debt instruments | | 42.7 | | | 44.1 | |
Property | | 20.3 | | | 17.1 | |
Other | | 12.7 | | | 12.2 | |
Total | | 108.4 | | | 97.9 | |
The following are the principal actuarial assumptions at the reporting date for the defined benefit retirement plans in Germany, Sweden, Austria, Switzerland and Italy. The remaining employee benefit plans are not considered to be material, individually and in aggregate, and therefore we do not provide disclosure of the individual actuarial assumptions for those plans:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Defined benefit retirement plans |
December 31, 2021 | Germany | | Sweden | | Austria | | Switzerland | | Italy |
Discount rate | 1.10 | % | | 1.80 | % | | 0.90 | % | | 0.10 | % | | 0.35 | % |
Inflation rate | 2.00 | % | | 2.20 | % | | 2.00 | % | | 1.00 | % | | 1.50 | % |
Rate of increase in salaries | 2.80 | % | | 3.20 | % | | 2.00 | % | | 1.50 | % | | 2.63 | % |
Rate of increase for pensions in payment | 1%-2% | | 2.20 | % | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Defined benefit retirement plans |
December 31, 2020 | Germany | | Sweden | | Austria | | Switzerland | | Italy |
Discount rate | 0.55 | % | | 1.05 | % | | 1.00 | % | | 0.15 | % | | 0.33 | % |
Inflation rate | 2.00 | % | | 1.50 | % | | 2.00 | % | | 0.20 | % | | 1.00 | % |
Rate of increase in salaries | 2.80 | % | | 2.50 | % | | 2.00 | % | | 0%-2.50% | | 2.63 | % |
Rate of increase for pensions in payment | 1%-2% | | 1.50 | % | | — | | | — | | | — | |
In valuing the liabilities of the pension fund at December 31, 2021 and December 31, 2020, mortality assumptions have been made as indicated below. The assumptions relating to longevity underlying the pension liabilities at the financial year end date are based on standard actuarial mortality tables and include an allowance for future improvements in longevity. The assumptions are based on the following mortality tables:
•Germany: Richttafeln 2018 G
•Sweden: DUS 14
•Austria: AVÖ 2018 - P
•Switzerland: BVG 2020 GT (2020: BVG 2015 GT)
•Italy: RG48
These references are to the specific standard rates of mortality that are published and widely used in each country for the use of actuarial assessment of pension liabilities and take account of local current and future average life expectancy.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2021 (years) | | Germany | | Sweden | | Austria | | Switzerland | | Italy |
Retiring at the end of the year: | | | | | | | | | | |
Male | | 21 | | 22 | | 23 | | 22 | | 21 |
Female | | 24 | | 24 | | 26 | | 24 | | 22 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2020 (years) | | Germany | | Sweden | | Austria | | Switzerland | | Italy |
Retiring at the end of the year: | | | | | | | | | | |
Male | | 21 | | 22 | | 23 | | 21 | | 21 |
Female | | 24 | | 24 | | 26 | | 24 | | 22 |
The history of experience adjustments from inception of the Company for the employee benefit plans is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
| | €m | | €m | | €m |
Present value of defined benefit obligations | | 341.5 | | | 365.1 | | | 314.9 | |
Fair value of plan assets | | (108.4) | | | (97.9) | | | (86.4) | |
| | | | | | |
Recognized liability in the scheme | | 233.1 | | | 267.2 | | | 228.5 | |
Experience losses/(gains) on plan liabilities | | 1.8 | | | (0.8) | | | 0.2 | |
Experience gains on plan assets | | (9.6) | | | (0.4) | | | (5.1) | |
Net defined benefit obligation - sensitivity analysis
The effect of a 1 percentage point movement in the most significant assumptions for the year ended December 31, 2021 is as follows:
| | | | | | | | | | | |
| Increase | | Decrease |
| €m | | €m |
Discount rate | (54.6) | | | 71.9 | |
Inflation rate | 47.4 | | | (38.7) | |
Rate of increase in salaries | 15.2 | | | (11.5) | |
Rate of increase for pensions in payment | 47.6 | | | (37.0) | |
There are no deficit elimination plans for any of the defined benefit plans. Expected contributions and payments to post-employment benefit plans for the period ending December 31, 2021 are €6.7 million. The weighted average duration of the defined benefit obligations is 18.9 years.
24)Provisions
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Restructuring | | Onerous/ unfavorable contracts | | Provisions related to other taxes | | | | Other | | Total |
| | €m | | €m | | €m | | | | €m | | €m |
Balance at December 31, 2019 | | 7.4 | | | 1.2 | | | 6.9 | | | | | 31.3 | | | 46.8 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Additional provision in the period | | 15.6 | | | — | | | 0.1 | | | | | 13.4 | | | 29.1 | |
Release of provision | | — | | | (0.7) | | | (0.4) | | | | | (6.0) | | | (7.1) | |
Utilization of provision | | (10.4) | | | (0.5) | | | — | | | | | (5.9) | | | (16.8) | |
| | | | | | | | | | | | |
Foreign exchange | | 0.3 | | | — | | | — | | | | | (0.5) | | | (0.2) | |
Balance at December 31, 2020 | | 12.9 | | | — | | | 6.6 | | | | | 32.3 | | | 51.8 | |
Acquired through business combinations | | — | | | — | | | 0.3 | | | | | 3.8 | | | 4.1 | |
Additional provision in the period | | 2.6 | | | — | | | 1.0 | | | | | 2.5 | | | 6.1 | |
Release of provision | | (0.1) | | | — | | | — | | | | | (4.0) | | | (4.1) | |
| | | | | | | | | | | | |
Utilization of provision | | (9.8) | | | — | | | — | | | | | (6.9) | | | (16.7) | |
| | | | | | | | | | | | |
Foreign exchange | | — | | | — | | | — | | | | | 1.0 | | | 1.0 | |
Balance at December 31, 2021 | | 5.6 | | | — | | | 7.9 | | | | | 28.7 | | | 42.2 | |
Analysis of total provisions: | | | | | | | | | | December 31, 2021 | | December 31, 2020 |
Current | | | | | | | | | | 39.3 | | | 45.7 | |
Non-current | | | | | | | | | | 2.9 | | | 6.1 | |
Total | | | | | | | | | | 42.2 | | | 51.8 | |
Restructuring
The €5.6 million (2020: €12.9 million) provision relates to committed plans for certain restructuring activities of exceptional nature which are due to be completed within the next 12 months.
The amounts have been provided based on the latest information available on the likely remaining expenditure required to complete the committed plans. An additional provision of €2.6 million has been made and €9.8 million has been utilized in the year ended December 31, 2021.
Provisions relating to other taxes
The €7.9 million (2020: €6.6 million) provision relates to other, non-income taxes due to tax authorities after tax investigations within certain operating subsidiaries within the Nomad Group.
Other
Other provisions include €3.9 million (December 31, 2020: €4.4 million) of contingent liabilities acquired as part of the Goodfella’s Pizza acquisition that are indemnified by the Seller’s insurance policies, €4.3 million (December 31, 2020: €4.7 million) of obligations in Italy, €4.6 million (December 31, 2020: €6.1 million) for asset retirement obligations, €1.3 million (December 31, 2020: €1.9 million) of pre-acquisition related liabilities related to the acquisition date liabilities of Aunt Bessie's Limited, €2.4 million (December 31, 2020: €6.6 million) of provisions in the period relate to employer taxes on the Long-term Incentive Plan (see Note 8) which would become payable on the issuance of shares, and other obligations from previous accounting periods.
25)Share capital, Capital reserve and Founder Preferred Shares Dividend reserve
Share capital and capital reserve
| | | | | | | | | | | |
| As at December 31, 2021 | | As at December 31, 2020 |
| €m | | €m |
Authorized: | | | |
Unlimited number of Ordinary Shares with nil nominal value issued at $10.00 per share | n/a | | n/a |
Unlimited number of Founder Preferred Shares with nil nominal value issued at $10.00 per share | n/a | | n/a |
Issued and fully paid: | | | |
173,559,173 (December 31, 2020: 172,180,897) Ordinary Shares with nil nominal value | 1,639.6 | | | 1,636.9 | |
1,500,000 (December 31, 2020: 1,500,000) Founder Preferred Shares with nil nominal value | 10.6 | | | 10.6 | |
Total share capital and capital reserve | 1,650.2 | | | 1,647.5 | |
Listing and share transaction costs | (27.1) | | | (27.0) | |
Total net share capital and capital reserve | 1,623.1 | | | 1,620.5 | |
Ordinary Shares
| | | | | |
| Issued and Repurchased Ordinary shares (in millions) |
Balance at December 31, 2019 | 194.5 | |
Shares issued in the year | 7.6 | |
Shares repurchased in the year | (29.9) | |
Balance at December 31, 2020 | 172.2 | |
| |
Shares issued in the year | 5.0 | |
Shares repurchased in the year | (3.6) | |
Balance at December 31, 2021 | 173.6 | |
Note 8(b) sets out the Non-Executive Director, Initial Director Options and Director and Senior Management Restricted share awards.
Note 27 sets out the Founder Preferred Share Dividends issued as ordinary shares in all years presented.
On March 13, 2020, the Company announced a share repurchase program to purchase up to an aggregate of $300.0 million of the Company’s ordinary shares. Acquisitions pursuant to the stock repurchase program may be made from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase transactions, and/or other derivative transactions. After the announcement, the Company entered into a series of open-market repurchases. During 2020, 11,913,682 ordinary shares at an average price of $21.04, for aggregate gross costs of $250.9 million (€217.4 million) had been repurchased and canceled. Directly attributed transaction costs of €0.2 million were incurred. During 2021, a further 507,396 ordinary shares were repurchased and cancelled at an average price of $25.29 for aggregate gross costs of $12.8 million (€10.5 million) under this authorization.
In August 2020, the Company announced the repurchase of up to $500.0 million of shares, to be executed by way of a Dutch auction. On September 15, 2020, a total of 18,061,952 shares at a clearing price of $25.50 per share amounting to the purchase price of $460.6 million (€389.3 million) was paid to the prevailing shareholders with all shares canceled as of the same date. Directly attributed transaction costs of €1.9 million were incurred.
On August 5, 2021, the Company announced a new share repurchase program to purchase up to an aggregate of $500.0 million of the Company’s ordinary shares, to be executed in the period to August 2024. Acquisitions pursuant to the stock repurchase program may be made from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase transactions, and/or other derivative transactions, at the Company's discretion, as permitted by securities laws and other legal requirements. Pursuant to the program, as at December 31, 2021, 3,090,082 ordinary shares had been repurchased and canceled at an average price of $24.50, for aggregate gross costs of $75.8 million (€67.1 million). Directly attributed transaction costs of €0.1 million were incurred.
Listing and share transaction costs
As at December 31, 2021, cumulative listing and share transaction costs, which includes the total cost of admission and share issuance expenses, as well as costs associated with share repurchases were €27.1 million and are disclosed as a deduction directly against the capital reserve.
| | | | | | | | |
| €m |
At December 31, 2019 | 24.9 | |
Share transaction costs | 2.1 | |
At December 31, 2020 | 27.0 | |
Share transaction costs | 0.1 | |
At December 31, 2021 | 27.1 | |
| |
| |
Obligation to purchase shares
As part of the August 5, 2021 authorized share repurchase program, the Company entered into share purchases at agreed prices, totaling 135,621 shares in late 2021 which had not been settled and were therefore not owned by Nomad until early 2022. As a result, the Company recorded €3.0 million within accounts payable to recognize the liability for those shares, with a corresponding other receivable to reflect the value of the shares to be received upon settlement.
Founder Preferred Shares Annual Dividend Amount
Each of the Founder Entities holds 750,000 shares for a total of 1,500,000 Founder Preferred Shares which were issued at $10.00 per share. The Founder Preferred Shares are intended to incentivize the Founders to achieve Nomad’s objectives. In addition to providing long term capital, the Founder Preferred Shares are structured to provide a dividend based on the future appreciation of the market value of the ordinary shares thus aligning the interests of the Founders with those of the holders of ordinary shares on a long term basis. The Founder Preferred Shares are also intended to encourage the Founders to grow Nomad to maximize value for holders of ordinary shares. There are no Founder Preferred Shares held in Treasury. Founder Preferred Shares confer upon the holder the following:
1.the right to one vote per Founder Preferred Share on all matters to be voted on by shareholders generally and to vote together with the holders of ordinary shares;
2.commencing on January 1, 2015 and for each financial year thereafter:
a.once the average price per ordinary share for the Dividend Determination Period, i.e. the last ten consecutive trading days of a year is at least $11.50 (which condition has been satisfied for the year ended December 31, 2015), the right to receive a Founder Preferred Shares Annual Dividend Amount (as more fully described below), payable in Ordinary Shares or cash, at the Company’s sole option; and
b.the right to receive dividends and other distributions as may be declared from time to time by the Company’s board of directors with respect to the Ordinary Shares (such dividends to be distributed among the holders of Founder Preferred Shares, as if for such purpose the Founder Preferred Shares had been converted into Ordinary Shares immediately prior to such distribution) plus an amount equal to 20% of the dividend which would be
distributable on such number of Ordinary Shares equal to the Preferred Share Dividend Equivalent (as defined below); and
3.in addition to amounts payable pursuant to clause 2 above, the right, together with the holders of Ordinary Shares, to receive such portion of all amounts available for distribution and from time to time distributed by way of dividend or otherwise at such time as determined by the Directors; and
4.the right to an equal share (with the holders of Ordinary Shares on a share for share basis) in the distribution of the surplus assets of Nomad on its liquidation as are attributable to the Founder Preferred Shares; and
5.the ability to convert into Ordinary Shares on a 1-for-1 basis (mandatorily upon a Change of Control or the seventh full financial year after an acquisition)
See Note 27 for further information on the Founder Preferred Shares Dividends issued.
26) Share-based compensation reserve
The Company's discretionary share award scheme, the LTIP, enables the Company’s Compensation Committee to make grants (“Awards”) in the form of rights over ordinary shares, to any Director, Non-Executive Director or employee of the Company. However, it is the Committee’s current intention that Awards be granted only to Directors and senior management, whilst recognizing a separate annual Restricted Stock Award for Non-Executive Directors.
All Awards are to be settled by physical delivery of shares. Note 8(b) sets out the Non-Executive Director and Director and Senior Management Restricted share awards.
| | | | | |
| Share based compensation reserve |
| €m |
Balance as of January 1, 2021 | 8.3 | |
Non-Executive Director restricted share awards charge | 0.8 | |
Directors and Senior Management share awards charge | 4.3 | |
Shares issued upon vesting of awards | (0.7) | |
Reclassification of awards for settlement of tax liabilities | (5.8) | |
Balance as of December 31, 2021 | 6.9 | |
27)Founder Preferred Shares Dividend Reserve
Nomad has issued Founder Preferred Shares to its Founder Entities. A summary of the key terms of the Founder Preferred Shares is set out in Note 25.
The Founder Preferred Shares Annual Dividend Amount is structured to provide a dividend based on the future appreciation of the market value of the ordinary shares, thus aligning the interests of the Founders with those of the investors on a long term basis. Commencing in 2015, the Founder Preferred Share Annual Dividend Amount became payable because the Company’s volume weighted average ordinary share price was above $11.50 for the last ten consecutive trading days of the 2015 financial year.
The Preferred Shares Annual Dividend amount is determined with reference to the Dividend Determination Period of a financial year, i.e. the last ten consecutive trading days and calculated as 20% of the increase in the volume weighted average share price of our ordinary shares across the determination period compared to the highest price previously used in calculating the Founder Preferred Share Annual Dividend Amounts (currently $25.2127) multiplied by 140,220,619 Preferred Share Dividend Equivalent (the “Preferred Share Dividend Equivalent”). The Preferred Share Dividend Equivalent is equal to the number of ordinary shares outstanding immediately following the Iglo Acquisition, but excluding the 13.7 million ordinary shares issued to the seller of the Iglo Group. The Founder Preferred Shares Annual Dividend Amount is paid for so long as the Founder Preferred Shares remain outstanding.
The amounts used for the purposes of calculating the Founder Preferred Shares Annual Dividend Amount and the relevant numbers of ordinary shares are subject to such adjustments for share splits, share dividends and certain other recapitalization events as the Directors in their absolute discretion determine to be fair and reasonable in the event of a consolidation or sub-division of the ordinary shares in issue, as determined in accordance with Nomad Foods’ Memorandum and Articles of Association.
Dividends on the Founder Preferred Shares are payable until the Founder Preferred Shares are converted into Ordinary Shares. The Founder Preferred Shares automatically convert on a one for one basis (i) on the last day of the seventh full financial year following our acquisition of Iglo Foods (or if such day is not a trading day, the next trading day) or (ii) in the event of a change of control (unless the independent directors of our board of directors determine otherwise). The holders of Founder Preferred Shares may also be converted to Ordinary shares on a one for one basis at the option of the holder. In the event of an automatic conversion, a dividend on the Founder Preferred Shares shall be payable with respect to the shorted dividend year on the trading day immediately prior to the conversion. In the event of an optional conversion by the holder, no dividend on the Founder Preferred Shares shall be payable with respect to the year in which the conversion occurred.
On December 31, 2019, the Company’s Board of Directors approved a share dividend of an aggregate of 6,421,074 ordinary shares calculated as 20% of the increase in the market price of our ordinary shares compared to 2018 dividend price of $16.7538 multiplied by Preferred Share Dividend Equivalent. The Dividend Price used to calculate the Annual Dividend Amount was $21.7289 (calculated based upon the volume weighted average price for the last ten consecutive trading days of 2019) and the ordinary shares underlying the Founder Preferred Share Dividend were issued on January 2, 2020.
On December 31, 2020, the Company’s Board of Directors approved a share dividend of an aggregate of 3,875,036 ordinary shares calculated as 20% of the increase in the market price of our ordinary shares compared to 2019 dividend price of $21.7289 multiplied by the Preferred Share Dividend Equivalent. The Dividend Price used to calculate the Annual Dividend Amount was $25.2127 (calculated based upon the volume weighted average price for the last ten consecutive trading days of 2020) and the ordinary shares underlying the Founder Preferred Share Dividend were issued on January 4, 2021.
As of December 31, 2021, no Founder Preferred Shares Annual Dividend Amount was due, as the average price per ordinary share for the last ten consecutive trading days of the year did not reach the previously achieved 2020 Dividend Price of $25.2127.
| | | | | |
| Founder Preferred Shares Dividend Reserve |
| €m |
Balance as of January 1, 2021 | 245.5 | |
Settlement of dividend through share issue | (79.5) | |
Balance as of December 31, 2021 | 166.0 | |
28)Translation reserve
The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations, as well as from the translation of liabilities that hedge the Company’s net investment in a foreign subsidiary.
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2021 | | 2020 | | 2019 |
| €m | | €m | | €m |
Balance as of January 1 | 84.7 | | | 94.8 | | | 88.8 | |
Adjustment on adoption of hedge accounting under IFRS 9 | 1.6 | | | — | | | — | |
Restated balance as of January 1 | 86.3 | | | 94.8 | | | 88.8 | |
Foreign currency translation adjustments | 31.7 | | | (23.6) | | | 19.2 | |
Net deferred (losses)/gains on net investment hedges (1) | (12.9) | | | 13.5 | | | (13.2) | |
Total presented in Other Comprehensive Income | 18.8 | | | (10.1) | | | 6.0 | |
Balance as of December 31 | 105.1 | | | 84.7 | | | 94.8 | |
(1) (Losses)/gains on net investment hedges are offset by €24.6 million of gains (2020: losses of €25.7 million, 2019: gains of €19.0 million) on GBP net investments included within the foreign currency translation adjustments.
The translation reserve as at December 31, 2021 does not include any balances relating to continuing hedging relationships. As at December 31, 2020, the translation reserve included €17.3 million relating to continuing hedging relationships in respect of GBP net investments. The translation reserve as at December 31, 2021 included €50.8 million (2020: €46.4 million) relating to a discontinued hedging relationship in respect of GBP net investments.
29) Other reserves
Under IFRS, cost of hedging allows firms to separately account for the fair value movement attributable to foreign currency basis under other comprehensive income (OCI) thereby excluding its impact from the hedge designation itself. Details of the Company's cash flow hedge accounting is detailed in Note 33.
The table below shows the movement in the cash flow hedging reserve and cost of hedging reserve during the year, including the gains or losses arising on the revaluation of hedging instruments during the year and the amount reclassified from Other Comprehensive Income ("OCI") to the Consolidated Statement of Profit or Loss in the year.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cross currency interest rate swaps | | Forward currency contracts | | Total Cash flow hedge reserve | | Cost of Hedging reserve | | Total Other reserves |
| €m | | €m | | €m | | €m | | €m |
Balance as of January 1, 2019 | 0.9 | | | 7.6 | | | 8.5 | | | — | | | 8.5 | |
Change in fair value of hedging instrument recognized in OCI for the year | 28.1 | | | 3.8 | | | 31.9 | | | — | | | 31.9 | |
Reclassified to cost of goods sold | — | | | (21.8) | | | (21.8) | | | — | | | (21.8) | |
Reclassified from OCI to finance costs | (37.4) | | | — | | | (37.4) | | | — | | | (37.4) | |
Deferred tax | 1.6 | | | 4.0 | | | 5.6 | | | — | | | 5.6 | |
Balance as of December 31, 2019 | (6.8) | | | (6.4) | | | (13.2) | | | — | | | (13.2) | |
Change in fair value of hedging instrument recognized in OCI for the year | (63.7) | | | (20.0) | | | (83.7) | | | — | | | (83.7) | |
Reclassified to cost of goods sold | — | | | 0.2 | | | 0.2 | | | — | | | 0.2 | |
Reclassified from OCI to finance costs | 66.2 | | | — | | | 66.2 | | | — | | | 66.2 | |
Deferred tax | (0.2) | | | 6.2 | | | 6.0 | | | — | | | 6.0 | |
Balance as of December 31, 2020 | (4.5) | | | (20.0) | | | (24.5) | | | — | | | (24.5) | |
Reallocation for IFRS 9 changes to policy (start of the year) | 2.8 | | | — | | | 2.8 | | | (4.4) | | | (1.6) | |
Transferred to the carrying value of inventory | — | | | 27.6 | | | 27.6 | | | — | | | 27.6 | |
Change in fair value of hedging instrument recognized in OCI for the year | 73.3 | | | 9.3 | | | 82.6 | | | 2.4 | | | 85.0 | |
Reclassified from OCI to finance costs | (64.1) | | | — | | | (64.1) | | | 1.7 | | | (62.4) | |
Deferred tax | (2.4) | | | (11.1) | | | (13.5) | | | (0.1) | | | (13.6) | |
Balance as of December 31, 2021 | 5.1 | | | 5.8 | | | 10.9 | | | (0.4) | | | 10.5 | |
30)Earnings per share
Basic earnings per share
| | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2021 | | Year ended December 31, 2020 | | Year ended December 31, 2019 | | | | | |
Profit for the period attributable to equity owners of the parent (€m) | 181.0 | | | 225.2 | | | 154.0 | | | | | | |
Weighted average Ordinary Shares and Founder Preferred Shares | 178,070,770 | | | 194,019,070 | | | 192,004,803 | | | | | | |
Basic earnings per share (€’s) | 1.02 | | | 1.16 | | | 0.80 | | | | | | |
For the year ended December 31, 2021, basic earnings per share is calculated by dividing the profit attributable to the shareholders of the Company of €181.0 million (year ended December 31, 2020: €225.2 million, year ended December 31, 2019: €154.0 million) by the weighted average number of Ordinary Shares of 176,570,770 (December 31, 2020: 192,519,070, year ended December 31, 2019: 190,504,803) and Founder Preferred Shares of 1,500,000 (December 31, 2020: 1,500,000, year ended December 31, 2019: 1,500,000).
Diluted earnings per share
| | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2021 | | Year ended December 31, 2020 | | Year ended December 31, 2019 | | | | | |
Profit for the period attributable to equity owners of the parent (€m) | 181.0 | | | 225.2 | | | 154.0 | | | | | | |
Weighted average Ordinary Shares and Founder Preferred Shares | 178,070,770 | | | 197,894,106 | | | 198,425,877 | | | | | | |
Diluted earnings per share (€’s) | 1.02 | | | 1.14 | | | 0.78 | | | | | | |
For the year ended December 31, 2021, the number of shares in the diluted earnings per share calculation include nil shares for the dilutive impact of the Ordinary shares to settle the Founder Preferred Shares Annual Dividend for the year ended December 31, 2021, as no shares were due to be issued. Refer to Notes 27 and 38 for further details.
31)Reconciliation of liabilities arising from financing activities
The table below details changes in the Company's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be classified in the Company's consolidated statements of cash flows from financing activities.
| | | | | | | | | | | | | | | | | | |
| Cash / non-cash | Total loans and borrowings (Note 21) | | Financial payables (Note 22) | Derivatives: (Net) Fair value of forward foreign exchange and currency swap contracts FVPTL | Derivatives: (Net) Fair value of cross currency interest rate swaps |
| | €m | | €m | €m | €m |
Opening balance January 1, 2021 | | 1,758.8 | | | 3.3 | | 0.2 | | 72.3 | |
Cash inflow (1) | Cash | 800.0 | | | — | | 0.3 | | 1.4 | |
Cash outflow (2) | Cash | (436.0) | | | (38.1) | | — | | (2.3) | |
Interest accretion (3) | Cash | 2.2 | | | 57.6 | | — | | — | |
Acquired through business combinations | Non-cash | 19.6 | | | — | | — | | — | |
Exchange movement | Non-cash | 64.1 | | | (0.2) | | — | | — | |
Fair value changes | Non-cash | — | | | — | | (0.1) | | (44.0) | |
Other non-cash adjustments | Non-cash | 18.7 | | | (2.9) | | — | | (6.8) | |
Closing balance December 31, 2021 | | 2,227.4 | | | 19.7 | | 0.4 | | 20.6 | |
| | | | | | | | | | | | | | | | | |
| Cash / non-cash | Total loans and borrowings (Note 21) | Financial payables (Note 22) | Derivatives: (Net) Fair value of forward foreign exchange and currency swap contracts FVPTL | Derivatives: (Net) Fair value of cross currency interest rate swaps |
| | €m | €m | €m | €m |
Opening balance January 1, 2020 | | 1,875.3 | | 4.1 | | (0.2) | | 15.3 | |
Cash inflow (1) | Cash | — | | — | | — | | 6.8 | |
Cash outflow (2) | Cash | (32.0) | | (57.0) | | (2.2) | | (3.9) | |
Interest accretion (3) | Cash | 5.2 | | 58.8 | | — | | — | |
Acquired through business combinations | Non-cash | 0.4 | | — | | — | | — | |
Exchange movement | Non-cash | (71.7) | | 0.9 | | — | | — | |
Fair value changes | Non-cash | — | | — | | 2.6 | | 54.1 | |
Other non-cash adjustments | Non-cash | (18.4) | | (3.5) | | — | | — | |
Closing balance December 31, 2020 | | 1,758.8 | | 3.3 | | 0.2 | | 72.3 | |
(1) Cash inflows from cross currency interest rate swaps are part of effective cash flow hedging relationships and are
presented within interest paid within the Consolidated Statements of Cash Flows.
(2) Cash outflows from cross currency interest rate swaps are not part of a cash flow hedge and are presented within
proceeds on settlement of derivatives within the Consolidated Statements of Cash Flows.
(3) Interest accretion includes interest on lease liabilities.
32)Cash flows from operating activities
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, 2021 | | Year ended December 31, 2020 | | Year ended December 31, 2019 | | | | | |
| Note | | €m | | €m | | €m | | | | | |
Cash flows from operating activities | | | | | | | | | | | | |
Profit for the period | | | 181.0 | | | 225.1 | | | 153.6 | | | | | | |
Adjustments for: | | | | | | | | | | | | |
Exceptional items | 7 | | 45.3 | | | 20.6 | | | 54.5 | | | | | | |
Non-cash fair value purchase price adjustment of inventory | 5 | | 8.4 | | | — | | | — | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Share based payments expense | | | 5.1 | | | 9.0 | | | 14.9 | | | | | | |
Depreciation and amortization | | | 71.6 | | | 67.6 | | | 68.3 | | | | | | |
Loss on disposal and impairment of property, plant and equipment | | | 0.7 | | | 0.9 | | | 0.6 | | | | | | |
Net finance costs | 10 | | 106.0 | | | 63.7 | | | 73.2 | | | | | | |
Taxation | 11 | | 55.7 | | | 70.4 | | | 56.7 | | | | | | |
Operating cash flow before changes in working capital, provisions and exceptional items | | | 473.8 | | | 457.3 | | | 421.8 | | | | | | |
(Increase)/decrease in inventories | | | (23.8) | | | (12.7) | | | 23.5 | | | | | | |
Decrease/(increase) in trade and other receivables | | | 24.1 | | | (1.8) | | | (34.4) | | | | | | |
(Decrease)/increase in trade and other payables | | | (25.0) | | | 107.2 | | | (40.6) | | | | | | |
Increase in employee benefit and other provisions | | | 1.2 | | | 2.0 | | | 6.6 | | | | | | |
Cash generated from operations before tax and exceptional items | | | 450.3 | | | 552.0 | | | 376.9 | | | | | | |
33)Financial risk management
Overall risk management policy
The Company’s activities expose it to a variety of financial risks, including currency risk, interest rate risk, credit risk and liquidity risk.
The Company’s overall risk management program focuses on minimizing potential adverse effects on the Company’s financial performance. Where appropriate, the Company uses derivative financial instruments to hedge certain risk exposures.
Risk management is led by senior management and executed according to Company policy. All hedging activity is carried out by a central treasury department that evaluates and hedges financial risks according to forecasts provided by the Company’s operating units.
Derivatives and hedging
Derivatives are used for economic hedging purposes and not as speculative investments. Where derivatives do not meet hedge accounting criteria, they are classified as 'fair value through profit or loss' for accounting purposes and are accounted for at fair value through profit or loss. They are presented as current assets or liabilities to the extent they are expected to be settled within 12 months after the end of the reporting period. The Company's derivative financial instruments are disclosed within Note 34.
Hedge accounting is applied to remove the accounting mismatch between the hedging instrument and the hedged item. The effective portion of the change in the fair value of the hedging instrument is accounted for in the translation reserve or cash flow hedge reserve through Other Comprehensive Income and will be recognized in profit or loss in the same period as the hedged item. Movements in the Company's translation reserve and cash flow hedging reserve are presented in Notes 28 and 29 respectively. The Company's accounting policy for hedge accounting is disclosed within Note 3.
On July 29, 2021 the Company extended its CCIRS used to hedge the foreign currency and interest rate risk on the current Senior USD Loan from May 2022 to May 2024 to align with the maturity date of the USD Term Loan. As part of the transaction, the EUR fixed rate paid by the Company has been amended and reflected in the underlying interest cost. The transaction was considered to be a substantial modification of the hedging instruments, so is considered to be a new hedging relationship which will give rise to some ineffectiveness in future periods. CCIRS contracts that were previously used as a net investment hedge of the Company’s investments in Pound Sterling have also been extinguished. A change in fair value of the CCIRS arose as a consequence of the transaction, which the Company has elected to write-off immediately as a cost of extinguishment. This non-cash loss of €6.8 million, as well as the write-off of the cost of hedging reserves associated with the discontinued net investment hedge, are presented as a one-off charge for the transaction as disclosed in Note 10. The cash flow hedge reserve related to the previous hedge relationship will be released on a straight line basis until May 2022.
As at December 31, 2021, the Company has $916.4 million of U.S. Dollar LIBOR floating rate debt. The Company uses cross currency interest rate swaps to convert this into €827.8 million of debt with a fixed rate of interest and designated as a cash flow hedge.
In creating cash flow hedges over U.S. Dollar debt, the Company enters into cross currency hedging arrangements with matching critical terms as the hedged item, such as reference rate, reset dates, payment dates, and notional amount. As part of the extension of the cross currency interest rate swaps on July 29, 2021 the Company entered into off market derivatives with an embedded financing component. Amortization of the embedded financing component shall lead to some ineffectiveness in the hedging relationship.
There was no material ineffectiveness during 2021 in relation to the cross currency interest rate swaps.
The effects of the cash flow hedging instruments on the Company's financial position and performance are as follows:
| | | | | | | | | | | |
All amounts stated in €m, unless otherwise stated | December 31, 2021 | | December 31, 2020 |
USD - cross currency interest rate swaps | | | |
Carrying amount of liability | (20.6) | | | (89.5) | |
Notional amount (USD) | $916.4 | | $926.0 |
Maturity date | 5/15/2024 | | 5/15/2022 |
Change in fair value of outstanding hedging instruments since January 1 | 68.9 | | | (71.0) | |
(Gain)/loss in value of hedged item used to determine effectiveness | (69.6) | | | 71.0 | |
Weighted average hedged rate for the year | 1.11 | | | 1.11 | |
The effects of the net investment hedging instruments on the Company's financial position and performance are as follows:
| | | | | | | | | | | |
All amounts stated in €m, unless otherwise stated | December 31, 2021 | | December 31, 2020 |
UK cross-currency interest rate swaps hedge | | | |
Carrying amount of cross-currency interest rate swaps | — | | | 14.3 | |
Notional amount (GBP) | — | | £220.2 |
Maturity date | 7/29/2021 | | 5/15/2022 |
Change in fair value of cross-currency interest rate swaps as a result of foreign currency movements since January 1 | (12.9) | | | 13.5 | |
Loss/(gain) in value of hedged item used to determine hedge effectiveness | 12.9 | | | (13.5) | |
Weighted average hedged rate for the year | 1.19 | | | 1.19 | |
The impact of the net investment hedge is taken directly to equity via the foreign currency translation reserve. The amount taken to this reserve that arose on the translation of the notional component of cross currency interest rate swaps was a loss of €12.9 million (2020: €13.5 million gain).
In determining hedge effectiveness for a net investment hedge, the economic relationship between hedging instrument and balance sheet exposure should be established including the notional amount and currency of the underlying investment. Hedge ineffectiveness may arise due to the value of the hedged item being less than the notional value of the hedging instrument. There was no material ineffectiveness in the net investment hedge in either 2021 or 2020. The ineffective amount taken through the Consolidated Statements of Profit or Loss in 2021 amounted to €nil (2020: €nil).
The Company's policy is to reduce its risk of foreign exchange movements on material operating cash flows in currencies other than the operating entity's functional currency using forward foreign exchange contracts designated as cash flow hedges. These forecast cash flows represent the hedged item and is subject to management assessment.
In order to qualify as a cash flow hedge, the hedging instrument must meet the requirements of IFRS 9, including alignment of the critical terms between the hedging instrument and hedged item. The group designates the forward component of forward contracts as the hedging instrument.
Hedge ineffectiveness may arise if timing of the forecast transaction changes from what was originally estimated, if credit dominates the relationship between hedged item of hedging instrument. There was no material ineffectiveness during 2021 in relation to the forward foreign exchange contracts.
The effects of the foreign currency hedging instruments on the Company's financial position and performance are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As at December 31, 2021 | EUR/USD | | GBP/USD | | GBP/EUR | | SEK/EUR | | SEK/USD | | Other Currencies |
| €m | | €m | | €m | | €m | | €m | | €m |
Derivative financial instruments - forward currency contracts | | | | | | | | | | | |
Carrying amount of (liability)/asset | 17.5 | | | 1.2 | | | (6.7) | | | 0.5 | | | 0.1 | | | 0.3 | |
Notional amount | 343.6 | | | 58.4 | | | 244.7 | | | 70.4 | | | 4.5 | | | 96.4 | |
Fair value (gains)/losses of outstanding hedging instruments since January 1 | (26.3) | | | (0.5) | | | 12.0 | | | (0.9) | | | 13.5 | | | 0.6 | |
Weighted average hedge rate for the year | 1.20 | | | 1.38 | | | 1.15 | | | 0.10 | | | 0.11 | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As at December 31, 2020 | EUR/USD | | GBP/USD | | GBP/EUR | | SEK/EUR | | SEK/USD | | Other Currencies |
| €m | | €m | | €m | | €m | | €m | | €m |
Derivative financial instruments - forward currency contracts | | | | | | | | | | | |
Carrying amount of asset/(liability) | (21.9) | | | (3.7) | | | 1.4 | | | (4.0) | | | (2.6) | | | (0.5) | |
Notional amount | 249.0 | | | 53.5 | | | 159.0 | | | 77.3 | | | 14.1 | | | 16.8 | |
Fair value (gains)/losses of outstanding hedging instruments since January 1 | (20.6) | | | (2.0) | | | 8.5 | | | (4.2) | | | (2.2) | | | 0.8 | |
Weighted average hedge rate for the year | 1.13 | | | 1.28 | | | 1.12 | | | 0.09 | | | 0.10 | | | 0.21 | |
Gains/losses in the year from foreign exchange swap contracts used for liquidity purposes designated as fair value through the Consolidated Statements of Profit or Loss amounted to a €0.6 million gain (2020: €2.4 million loss, 2019: €4.8 million gain).
Losses in the year from cross currency interest rate swap contracts designated as fair value through the Consolidated Statement of Profit or Loss amounted to a €14.3 million loss (2020: €3.2 million loss, 2019: €13.6 million loss).
Market risk (including foreign exchange and interest rate risk)
In managing market risks, the Company aims to minimize the impact of short term fluctuations on the Company’s earnings. Over the longer term, permanent changes in both foreign exchange rates and interest rates will have an impact on consolidated earnings.
| | | | | | | | |
Currency risk | | Foreign currency risk on assets and liabilities in currencies other than functional currency |
Foreign Exchange
translation risk The Company is exposed to foreign exchange translation risk arising from the translation of assets and liabilities denominated in currencies other than the Euro. Key areas of foreign currency exposure include non-Euro debt and investments in subsidiaries not held in Euro. Company policy is to mitigate the potential foreign exchange translation risk by converting where appropriate, borrowings into Euro. This has been achieved on the Senior USD Loan through the use of cross currency interest rate swaps designated as a cash flow hedge. The Company also hedged translation exposure on consolidation of GBP net assets through the use of cross currency interest rate swaps designated as a net investment hedge. The net investment hedge was discontinued when CCIRS contracts that were used as a net investment hedge of the Company’s investments in Pound Sterling were extinguished.
Mitigation & Impact on
Statement of Financial Foreign exchange translation risk resulting from the translation of non-Euro
Position Denominated borrowings into Euros, to the extent that they are hedged will be mitigated by the translation of the underlying cross currency interest rate hedging arrangements.
| | | | | | | | |
Currency risk | | Foreign currency risk on purchases |
The Company is exposed to foreign exchange risk where a business unit has material operating cash flows in a currency other than the functional currency of that entity.
The most significant exposures for the Company are the purchase of raw materials, stock and services purchased in U.S. Dollars and Euros.
Mitigation & Impact on The Company’s policy is to reduce this risk by using foreign exchange forward contracts
Statement of Financial that are designated as cash flow hedges.
Position / Equity
As at December 31, 2021, the fair value of USD forward contracts entered into to hedge the future purchase of U.S. Dollars in EUR, GBP and SEK functional currency entities is an asset of €18.8 million (2020: €28.3 million liability). All forecast transactions are still expected to occur. As at December 31, 2021, 95.1% (2020: 87.9%) of forecast future U.S. Dollar payments to the end of 2022 were hedged through the use of forward contracts and existing cash. All forward contracts have been designated as cash flow hedges and have a maturity within the next 12 months.
The fair value of the Euro forward contracts with reference to non-Euro functional currencies as at December 31, 2021, is a liability of €5.9 million (2020: €3.1 million). As at December 31, 2021, 77.2% (2020: 84.9%) of forecast future net Euro payments to the end of 2022 were hedged through the use of forward contracts and existing cash. All forward contracts have been designated as cash flow hedges and have a maturity within the next 12 months.
Sensitivity analysis During 2021, the Euro weakened by 7.3% against Pound Sterling (2020: strengthened by 5.2%, 2019: weakened by 5.3%), weakened by 7.8% against the U.S. Dollar (2020: strengthened by 9.6%, 2019: weakened by 2.0%) and strengthened by 1.8% against the Swedish Krona (2020: weakened by 3.8%, 2019: strengthened by 2.2%).
The table below illustrates the hypothetical sensitivity of the Company’s reported profit and closing equity to a 1% movement in the EUR/GBP, EUR/USD and EUR/SEK exchange rates at the reporting date, assuming all other variables remain unchanged. This analysis is for illustrative purposes only, as in practice the foreign exchange rates rarely change in isolation. Figures are presented post-tax.
The analysis assumes that exchange rate fluctuations on foreign exchange derivatives that form part of an effective cash flow hedge relationship affect the cash flow hedge reserve in equity. For foreign exchange derivatives which are not designated hedges, movements in exchange rates impact the Income Statement.
Positive figures represent an increase in profit or equity.
| | | | | | | | | | | | | | | | | | | | | | | |
| Profit or loss | | Equity |
| 2021 | | 2020 | | 2021 | | 2020 |
| €m | | €m | | €m | | €m |
1% increase in the value of the Euro against Pound Sterling | — | | | 0.7 | | | 1.5 | | | 2.8 | |
1% increase in the value of the Euro against U.S. Dollar | — | | | — | | | (2.0) | | | (1.4) | |
1% increase in the value of the Euro against Swedish Krona | (0.4) | | | (0.4) | | | 0.4 | | | 0.5 | |
A 1% decrease in the value of the Euro against the currencies identified in the table above would result in a equal and opposite movement to the values disclosed in the table above. This analysis is for illustrative purposes.
On an annualized 2021 basis, and assuming all other factors remain constant, for each 1% movement in value of the Euro against Pound Sterling, the impact to the Company profit or loss before tax would be approximately €3.3 million (2020: €3.0 million), excluding the impact of any forward contracts.
On an annualized 2021 basis, and assuming all other factors remain constant, for each 1% movement in value of the Euro against the U.S. Dollar, the impact to the Company profit or loss before tax would be approximately €3.0 million (2020: €3.0 million), excluding the impact of any forward contracts.
On an annualized 2021 basis, and assuming all other factors remain constant, for each 1% movement in value of the Euro against Swedish Krona, the impact to the Company profit or loss before tax would be approximately €1.0 million (2020: €1.1 million), excluding the impact of any forward contracts.
We do not expect purchase levels to be materially different in the coming year.
Description The Company is exposed to changes in interest rates to the extent that it enters into floating rate borrowings, including the senior loans.
Mitigation & Impact on
Equity / Income The Company’s policy on interest rate risk is to mitigate the Company’s exposure to fluctuations
Statement in interest rates.
As a result of decisions taken by national regulators, GBP LIBOR and certain USD LIBOR time periods were phased out at the end of Dec 2021 and replaced by alternative reference indexes (SONIA and SOFR). Our expectation is that both debt agreements and hedging contracts will be aligned to the new benchmarks as they become known, and as such it is highly probable that the existing hedging relationships can be continued. It is expected that the transition to the new benchmarks, to the extent not already reflected in the current financing facilities, will occur during the refinance of the USD Term Loan.
There are no current plans to phase out EURIBOR. If EURIBOR ceases to exist, we will need to renegotiate our Senior Facilities Agreement with our lenders and associated cross currency interest rate swaps.
Sensitivity analysis During 2021, three month EURIBOR rates remained below zero (2020: no change). Within the Euro denominated senior loans, there is a EURIBOR floor of 0%.
If interest rates were to move by 1%, this would have a correspondingly decrease or increase in the Company’s profit/(loss) before tax by approximately €2.6 million (2020: €5.6 million), subject to the EURIBOR floor of 0%.
Credit risk
Description Credit risk arises on cash and cash equivalents, derivative financial instruments with banks and financial institutions, any short term investments, as well as on credit exposures to customers. See Note 18 for analysis of the trade receivables balance and Note 20 for analysis of the cash and cash equivalents balance. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets.
Mitigation The Company limits counterparty exposures by monitoring each counterparty carefully and where possible, sets credit limits according to approved treasury policy. The Company limits its exposure to individual financial institutions by diversification of exposure across a range of financial institutions.
The credit quality of customers is assessed taking into account their financial position, past experience and other factors. Credit limits are set for customers and regularly monitored to mitigate ongoing payment risk.
Liquidity risk
Description The Company is exposed to the risk that it is unable to meet its commitments as they fall due. The Company has financial conditions, including financial covenants as part of the Senior debt arrangements which it must comply with in order to maintain its current level of borrowings. There have been no breaches of the covenants throughout the year.
Mitigation The Company ensures that it has sufficient cash and available funding through regular cash flow and covenant forecasting. The Company uses liquidity swaps to manage timing of cash flows in non-functional currencies. These swaps are accounted for as FVTPL. In addition, the Company has access to a revolving credit facility of €175.0 million, expiring in June 2026. This is available for general corporate purposes. Currently €2.8 million is utilized for letters of credit, overdrafts, customs bonds and bank guarantees.
Capital risk management
The objective of the Company when considering total capital is to protect the value of capital investments and to generate returns on shareholder funds. Total capital is defined as including Loans and Borrowings and equity, including derivatives used for the purpose of hedging currency and interest exposure on Loans and Borrowings, but excluding the cash flow hedging reserve.
In support of its objectives, the Company may undertake actions to adjust its capital structure accordingly. Actions may include, but not limited to, raising or prepayment of Borrowings together with related derivative instruments, issuance of additional share capital, payment of dividends or share repurchase programs.
Maturity analysis
The USD senior loan includes the annual requirement to repay 1% of the original issued notional of $9.6 million (€8.7 million) (2020: €8.7 million) In addition, the Senior Facilities Agreement also includes an excess cash flow calculation whereupon an amount of principal shall be repaid based upon terms including cash generated and leverage. Based upon the calculation as at December 31, 2021, no excess cash flow will be repayable in 2022 (2020: nil repayable in 2021).
The tables below show a maturity analysis of contractual undiscounted cash flows prepared using forward interest rates where applicable, showing items at the earliest date on which the Company could be required to pay the liability:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2021 | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Over 5 years | | Total |
| €m | | €m | | €m | | €m | | €m | | €m | | €m |
Borrowings-principal | 8.5 | | | 8.5 | | | 791.7 | | | — | | | — | | | 1,353.2 | | | 2,161.9 | |
Borrowings-interest | 57.5 | | | 63.5 | | | 50.4 | | | 34.0 | | | 34.1 | | | 67.0 | | | 306.5 | |
Forward contracts Sell | 805.3 | | | — | | | — | | | — | | | — | | | — | | | 805.3 | |
Forward contracts Buy | (818.0) | | | — | | | — | | | — | | | — | | | — | | | (818.0) | |
Cross Currency Interest Rate Swaps Pay | 25.0 | | | 24.9 | | | 818.5 | | | — | | | — | | | — | | | 868.4 | |
Cross Currency Interest Rate Swaps Receive | (30.8) | | | (38.0) | | | (808.0) | | | — | | | — | | | — | | | (876.8) | |
Lease Liabilities | 23.1 | | | 18.2 | | | 11.2 | | | 7.3 | | | 5.6 | | | 25.2 | | | 90.6 | |
Trade and other payables excluding non-financial liabilities | 647.1 | | | — | | | — | | | — | | | — | | | — | | | 647.1 | |
Total | 717.7 | | | 77.1 | | | 863.8 | | | 41.3 | | | 39.7 | | | 1,445.4 | | | 3,185.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2020 | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Over 5 years | | Total |
| €m | | €m | | €m | | €m | | €m | | €m | | €m |
Borrowings-principal | 7.8 | | | 7.8 | | | 7.8 | | | 1,683.1 | | | — | | | — | | | 1,706.5 | |
Borrowings-interest | 46.6 | | | 46.8 | | | 47.2 | | | 20.4 | | | — | | | — | | | 161.0 | |
Forward contracts Sell | 677.3 | | | — | | | — | | | — | | | — | | | — | | | 677.3 | |
Forward contracts Buy | (647.5) | | | — | | | — | | | — | | | — | | | — | | | (647.5) | |
Cross Currency Interest Rate Swaps Pay | 38.5 | | | 1,135.9 | | | — | | | — | | | — | | | — | | | 1,174.4 | |
Cross Currency Interest Rate Swaps Receive | (34.6) | | | (1,059.0) | | | — | | | — | | | — | | | — | | | (1,093.6) | |
Lease Liabilities | 17.2 | | | 13.6 | | | 9.9 | | | 6.2 | | | 5.2 | | | 28.1 | | | 80.2 | |
Trade and other payables excluding non-financial liabilities | 601.1 | | | — | | | — | | | — | | | — | | | — | | | 601.1 | |
Total | 706.4 | | | 145.1 | | | 64.9 | | | 1,709.7 | | | 5.2 | | | 28.1 | | | 2,659.4 | |
34)Financial instruments
Categories of financial instruments
The following table shows the carrying amount of each Statement of Financial Position class split into the relevant category of financial instrument as defined in IFRS 9 'Financial Instruments'.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Financial assets at amortized cost | | Financial Assets at Fair Value through profit or loss | | Derivatives at fair value through profit or loss | | Derivatives designated in hedge relationships | | Financial liabilities at amortized cost | | Total |
2021 | €m | | €m | | €m | | €m | | €m | | €m |
Assets | | | | | | | | | | | |
Trade and other receivables | 201.6 | | | — | | | — | | | — | | | — | | | 201.6 | |
Derivative financial instruments | — | | | — | | | 0.5 | | | 19.7 | | | — | | | 20.2 | |
Cash and cash equivalents | 254.2 | | | — | | | — | | | — | | | — | | | 254.2 | |
| | | | | | | | | | | |
Liabilities | | | | | | | | | | | |
Trade and other payables excluding non-financial liabilities | — | | | — | | | — | | | — | | | (647.1) | | | (647.1) | |
Derivative financial instruments | — | | | — | | | (0.1) | | | (28.0) | | | — | | | (28.1) | |
Loans and borrowings (1) | — | | | — | | | — | | | — | | | (2,236.8) | | | (2,236.8) | |
Total | 455.8 | | | — | | | 0.4 | | | (8.3) | | | (2,883.9) | | | (2,436.0) | |
(1) Loans and borrowings excludes €9.4 million of deferred borrowing costs which are included within €2,227.4 million of total loans and borrowings in Note 21.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Financial assets at amortized cost | | Financial Assets at Fair Value through profit or loss | | Derivatives at fair value through profit or loss | | Derivatives designated in hedge relationships | | Financial liabilities at amortized cost | | Total |
2020 | €m | | €m | | €m | | €m | | €m | | €m |
Assets | | | | | | | | | | | |
Trade and other receivables | 141.2 | | | — | | | — | | | — | | | — | | | 141.2 | |
Derivative financial instruments | — | | | — | | | 2.9 | | | 19.8 | | | — | | | 22.7 | |
Cash and cash equivalents | 393.2 | | | — | | | — | | | — | | | — | | | 393.2 | |
Short - term investments | — | | | 25.0 | | | — | | | — | | | — | | | 25.0 | |
Liabilities | | | | | | | | | | | |
Trade and other payables excluding non-financial liabilities | — | | | — | | | — | | | — | | | (601.1) | | | (601.1) | |
Derivative financial instruments | — | | | — | | | (0.2) | | | (124.8) | | | — | | | (125.0) | |
Loans and borrowings (2) | — | | | — | | | — | | | — | | | (1,765.7) | | | (1,765.7) | |
Total | 534.4 | | | 25.0 | | | 2.7 | | | (105.0) | | | (2,366.8) | | | (1,909.7) | |
(2) Loans and borrowings excludes €6.9 million of deferred borrowing costs which are included within €1,758.8 million of total non-current loans and borrowings in Note 21.
Fair values
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, Nomad uses various methods including market, income and cost approaches. Based on these approaches, Nomad utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs may be readily observable, market corroborated, or generally unobservable inputs. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values.
Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
Level 1—Quoted prices for identical assets and liabilities traded in active exchange markets, such as the New York Stock Exchange.
Level 2—Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data.
Level 3—Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation; also includes observable inputs for non binding single dealer quotes not corroborated by observable market data. Where market information is not available to support internal valuations, reviews of third party valuations are performed.
While Nomad believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
The following is a description of the valuation methodologies and assumptions used for estimating the fair values of financial instruments held by the Company.
(i)Derivative financial instruments
Derivative financial instruments are held at fair value. There is no difference between carrying value and fair value. The valuation technique utilized by the Company maximizes the use of observable market data where it is available. All significant inputs required to fair value the instrument are observable. The Company has classified its derivative financial instruments as level 2 instruments as defined in IFRS 13 ‘Fair value measurement’.
(ii)Trade and other payables/receivables
The notional amount of trade and other payables/receivables are deemed to be carried at fair value, short term and settled in cash.
(iii)Cash and cash equivalents
The carrying value of cash and cash equivalents is deemed to equal fair value.
(iv)Short-term investments
Short-term investments are valued using inputs that are derived principally from or corroborated by observable market data. The Company has classified these as level 2 instruments as defined in IFRS 13 “Fair value measurement”.
(v)Interest bearing loans and liabilities
The fair value of secured notes is determined by reference to price quotations in the active market in which they are traded. They are classified as level 1 instruments. The fair value of the senior loans is calculated by discounting the expected future cash flows at the year end’s prevailing interest rates. They are classified as level 2 instruments. There is no requirement to determine or disclose the fair value of lease liabilities.
On June 24, 2021, the Company through its indirect, wholly-owned subsidiary, Nomad Foods Bondco Plc, repaid the €400.0 million 3.25% senior secured notes due 2024 and completed a private offering of €750.0 million aggregate principal amount of 2.5% senior secured notes due June 24, 2028 (the “Notes”). Interest on the Notes accrues from the date of issue and is payable semi-annually in arrears on January 15 and July 15, commencing on January 15, 2022. The Notes are guaranteed on a senior basis by the Company and certain subsidiaries thereof. This transaction was accounted for as an extinguishment of the existing Notes and previously capitalized eligible transaction costs were written-off to the Statement of Comprehensive Income, as disclosed in Note 10. On the new Notes, eligible transaction costs of approximately €4.0 million were capitalized and will be amortized over the life of the debt.
On July 9, 2021 the Company announced that Nomad Foods Bondco Plc, an indirect, wholly-owned subsidiary of the Company, completed its private offering of €50.0 million aggregate principal amount of additional 2.5% senior secured notes due 2028, representing a tack-on to the €750.0 million aggregate principal amount of senior secured notes due 2028 issued on June 24, 2021, and issued at a price of €100.75.
On June 24, 2021, the Company amended and restated the Senior Facilities Agreement to refinance its existing €553.2 million senior secured term loan facility originally due in May 2024, through a new 7-year term facility due 2028 (the "Senior EUR Loan"), paying interest at a rate equal to EURIBOR with a zero floor plus a margin of 2.5%. This transaction was accounted for as an extinguishment of the existing debt and previously capitalized eligible transaction costs were written-off to the Statement of Comprehensive Income, as disclosed in Note 10. On the new Senior EUR Loan, eligible transaction costs of approximately €3.8 million were capitalized and will be amortized over the life of the debt.
Under the refinancing, the existing revolving credit facility of €80.0 million due 2023, was replaced with a new €175.0 million facility (the "Revolving Credit Facility") available until June 2026 with an applicable margin of 2.25% per annum and that includes a leverage ratchet. The Revolving Credit Facility may be utilized to support working capital requirements, including letters of credit and bank guarantees. The structure of the Revolving Credit Facility now also includes a pricing structure linked to environmental impact metrics during the life of the facility, and by doing so demonstrates further commitment to the Company’s sustainability strategy by incorporating ESG target KPIs covering areas of sourcing, packaging and carbon emissions.
The Company continues to have outstanding senior USD loans as at December 31, 2021 of $916.4 million (€808.6 million) (the “Senior USD Loan”). The Senior USD Loan is repayable in May 2024. The Senior USD Loan requires a repayment of $9.6 million (€8.5 million) in May each year until maturity equivalent to 1.0% of the original issued notional.
Furthermore as part of the senior loan structure, the Company is additionally required to undertake an annual excess cash flow calculation whereby additional principal could be paid.
The Company uses cross currency interest rate swaps (“CCIRS”) to convert its $916.4 million of floating rate Senior USD Loans into €827.8 million of EUR denominated debt with a fixed rate of interest, designated as a cash flow hedge.
On July 29, 2021 the Company extended its CCIRS used to hedge the foreign currency and interest rate risk on the current Senior Secured USD Term Loan from May 2022 to May 2024 to align with the maturity date of the USD Term Loan. As part of the transaction, the EUR fixed rate paid by the Company has been amended and reflected in the underlying interest cost. The transaction is considered to be a substantial modification of the hedging instruments, so is considered to be a new hedging relationship which will give rise to some ineffectiveness in future periods. CCIRS contracts that have previously been used as a net investment hedge of the Company’s investments in Pound Sterling have also been extinguished. A change in fair value of the CCIRS arose as a consequence of the transaction, which the Company has elected to write-off immediately as a cost of extinguishment. This non-cash loss, as well as the write-off of the cost of hedging reserves associated with the discontinued net investment hedge, are presented as a one-off charge for the transaction as disclosed in Note 10. The cash flow hedge reserve related to the previous hedge relationship will be released on a straight line basis until May 2022.
The senior loans, Senior Secured Notes and any drawn balances of the Revolving Credit Facility are secured with equal ranking against assets of the Company and specified subsidiaries.
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair value | | Carrying value |
| December 31, 2021 | | December 31, 2020 | | December 31, 2021 | | December 31, 2020 |
| €m | | €m | | €m | | €m |
Senior EUR/USD loans | 1,360.8 | | | 1,300.4 | | | 1,355.8 | | | 1,295.1 | |
Other external debt | 0.1 | | | 0.2 | | | 0.1 | | | 0.2 | |
2024 fixed rate senior secured notes | — | | | 405.8 | | | — | | | 400.0 | |
2028 fixed rate senior secured notes | 802.6 | | | — | | | 800.0 | | | — | |
Less deferred borrowing costs | — | | | — | | | (9.4) | | | (6.9) | |
| 2,163.5 | | | 1,706.4 | | | 2,146.5 | | | 1,688.4 | |
Derivatives
| | | | | | | | | | | |
| As at December 31, 2021 | | As at December 31, 2020 |
| €m | | €m |
Cross Currency Interest Rate Swaps | — | | | 17.2 | |
Forward foreign exchange contracts | 20.2 | | | 5.5 | |
Total assets | 20.2 | | | 22.7 | |
Cross Currency Interest Rate Swaps | (20.6) | | | (89.5) | |
Forward foreign exchange contracts | (7.3) | | | (35.5) | |
Total liabilities | (27.9) | | | (125.0) | |
Total | (7.7) | | | (102.3) | |
Offsetting of derivatives
Derivative contracts are held under International Swaps and Derivatives Association (ISDA) agreements with financial institutions. An ISDA is an enforceable master netting agreement that permits the Company to settle net in the event of default.
The following table sets out the carrying amounts of recognized financial instruments that are subject to the above agreements.
| | | | | | | | | | | | | | | | | |
| Gross amount of financial instruments as presented upon balance sheet | | Related financial instruments that are offset | | Net amount |
As at Dec 31, 2021 | €m | | €m | | €m |
Derivatives - assets | 20.2 | | | (10.8) | | | 9.4 | |
Derivatives - liabilities | (27.9) | | | 10.8 | | | (17.1) | |
| | | | | | | | | | | | | | | | | |
| Gross amount of financial instruments as presented upon balance sheet | | Related financial instruments that are offset | | Net amount |
As at Dec 31, 2020 | €m | | €m | | €m |
Derivatives - assets | 22.7 | | | (22.7) | | | — | |
Derivatives - liabilities | (125.0) | | | 22.7 | | | (102.3) | |
35)Commitments
Future aggregate minimum contractual payments under non-cancellable service agreements and lease rentals for short-lived and low-value assets are payable as follows:
| | | | | | | | | | | |
| As at December 31, 2021 | | As at December 31, 2020 |
| €m | | €m |
Less than one year | 2.2 | | | 1.9 | |
Between one and three years | 4.1 | | | 3.5 | |
Between three and five years | 2.2 | | | 2.0 | |
More than five years | 0.2 | | | 0.1 | |
Total | 8.7 | | | 7.5 | |
These agreements may be subject to contractual annual increases linked to inflation indices. The payments shown above exclude the impact of these contractual increases which cannot be reliably estimated.
36)Capital commitments
Capital expenditure contracted for at the end of the reporting period but not yet incurred is as follows:
| | | | | | | | | | | |
| As at December 31, 2021 | | As at December 31, 2020 |
| €m | | €m |
Property, plant and equipment | 21.3 | | | 13.6 | |
Intangible assets | 1.7 | | | 3.4 | |
Total | 23.0 | | | 17.0 | |
37) Related parties
Founder Preferred Shares
Nomad has issued Founder Preferred Shares to its Founder Entities.
The conditions of the Founder Preferred Shares Annual Dividend Amount in 2018, 2019 and 2020 were met and further details relating to these dividends is set out in Note 27.
Advisory Services Agreements
On June 15, 2015, the Company entered into an Advisory Services Agreement with Mariposa Capital, LLC, an affiliate of Mr. Franklin, and TOMS Capital LLC, an affiliate of Mr. Gottesman. Pursuant to the terms of the Advisory Services Agreement, Mariposa Capital, LLC and TOMS Capital LLC provide high-level strategic advice and guidance to the Company. Under the terms of the Advisory Services Agreement, Mariposa Capital, LLC and TOMS Capital LLC are entitled to receive an aggregate annual fee equal to $2.0 million, payable in quarterly installments. This agreement expires on June 1st annually and will be automatically renewed for successive one-year terms unless any party notifies the other parties in writing of its intention not to renew the agreement no later than 90 days prior to the expiration of the term. The agreement may only be terminated by the Company upon a vote of a majority of its directors. In the event that the agreement is terminated by the Company, the effective date of the termination will be 6 months following the expiration of the initial term or a renewal term, as the case may be.
On January 1, 2022, the Company entered into an Amended and Restated Advisory Services Agreement with Mariposa Capital, LLC, an affiliate of Sir Martin, and TOMS Capital LLC, an affiliate of Mr. Gottesman. Pursuant to the terms of the Amended and Restated Advisory Services Agreement, Mariposa Capital, LLC and TOMS Capital LLC provide high-level strategic advice and guidance to the Company. Under the terms of the Amended and Restated Advisory Services Agreement, Mariposa Capital, LLC and TOMS Capital LLC are entitled to receive an aggregate annual fee equal to $4.0 million, payable in quarterly installments. This agreement expires on January 1st annually and will be automatically renewed for successive one-year terms unless any party notifies the other parties in writing of its intention not to renew the agreement no later than 90 days prior to the expiration of the term. The agreement may only be terminated by the Company upon a vote of a majority of its directors. In the event that the agreement is terminated by the Company, the effective date of the termination will be 6 months following the expiration of the initial term or a renewal term, as the case may be.
Total fees and expenses of €0.8 million and €0.8 million were incurred by Mariposa Capital, LLC and TOMS Capital LLC respectively in the course of their duties and were reimbursed in the year ending December 31, 2021 (year ended December 31, 2020: €1.0 million and €0.9 million respectively).
During 2020, the Company entered into an agreement with a working capital solutions specialist to facilitate a program that provides our suppliers with the ability to receive advance payments from a third party credit institution as part of our ordinary course of business payables, in exchange for a discounted invoice amount. The working capital solutions specialist is owned in part by affiliates of JRJ Group (of which one of our non-executive directors, Mr. Isaacs, is a founding partner) and TOMS Capital LLC (of which Mr. Gottesman is the founder and managing partner). Amounts paid by the Company to the working capital solutions specialist related to setup during 2020 were less than €0.1 million and are not considered to be material to either party. Ongoing fees associated with this service are received by the working capital solutions specialist directly from our suppliers utilizing the service.
Directors and Key Management
All significant management decision making authority is vested within the Board of Directors and the Executive Team, therefore key management are considered to be the Directors and Executive Officers. Their remuneration has been disclosed in Note 9.
In May 2020, former and current Non-Executive Directors were issued shares, exercising all the remaining initial options outstanding as detailed in Note 25.
Non-executive Directors continue to receive fees for their services as board members and to certain committees and are settled through payroll. Director fees are payable quarterly in arrears. Total Non-executive Director fees and expenses for the year ending December 31, 2021 was €0.4 million (year ended December 31, 2020: €0.3 million).
Non-Executive Directors are also eligible to an annual restricted stock grant issued under the LTIP which will vest on the earlier to occur of the date of the Company’s annual meeting of shareholders or thirteen months from the date of grant. Details of the annual restricted stock grants under the LTIP can be found in Note 8(b).
As part of its long term incentive initiatives, the Company has 2,016,855 restricted shares outstanding to the management team (the “Management Share Awards”). The Directors and Executive Officers have all been awarded shares. The associated performance metrics and valuation method is detailed in Note 8(b).
38) Significant events after the Statement of Financial Position date
From January 1, 2022 to March 2, 2022, the Company has repurchased and canceled an additional 1,160,547 ordinary shares in open market transactions for $30.5 million (€26.9 million) under its previously announced share repurchase program authorized by Nomad’s Board of Directors in August 2021.