Earnings Call
Nomad Foods Ltd (NOMD)
Earnings Call Transcript - NOMD Q3 2023
Operator, Operator
Greeting. Welcome to the Nomad Foods Third Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Anthony Bucalo, Head of Investor Relations. You may begin.
Anthony Bucalo, Head of Investor Relations
Hello, and welcome to the Nomad Foods third quarter 2023 earnings call. I am Anthony Bucalo, Head of Investor Relations, and I am joined on the call by Stefan Descheemaeker, our CEO; and Samy Zekhout, our CFO. Before we begin, I would like to draw your attention to the disclaimer on Slide 2 of our presentation. This conference call may include forward-looking statements that are based on our view of the Company's prospects, expectations and intentions at this time. Actual results may differ due to risks and uncertainties, which are discussed in our press release, our filings with the SEC and this slide in our investor presentation, which includes cautionary language. We will also discuss non-IFRS financial measures during the call today. These non-IFRS financial measures should not be considered a replacement for and should be read together with IFRS results. Users can find the IFRS to non-IFRS reconciliations within our earnings release and in the appendices at the end of the slide presentation available on our website. Please note that certain financial information within this presentation represents adjusted figures for 2022 and 2023. All adjusted figures have been adjusted for exceptional items, acquisition-related costs, share-based payments and related expenses as well as noncash FX gains or losses. Unless otherwise noted, comments from here on will refer to those adjusted numbers. With that, I will hand you over to Stefan.
Stefan Descheemaeker, CEO
Thank you, Tony, and thank you for joining us on the call today. Nomad posted a solid top and bottom line performance in the third quarter, following our excellent results from the first half of the year. Sales grew organically by 1.6%, our fifth consecutive quarter of organic sales expansion. Additionally, we generated strong adjusted free cash flow, successfully refinanced USD 700 million of our debt to lower interest charges and bought back €66 million of our own shares at attractive prices. We have bought back more than 4% of our shares in the first nine months of the year. Our teams accomplished this while deploying new strategic commercial investments to drive growth and bring us back to positive volumes. Boosted by our share repurchases, we are again raising our annual adjusted EPS guidance. We're closely watching the development of weight loss drugs globally and the possible impact on food industry volumes. The long-term impact of these treatments is still under examination. However, in any scenario, we believe Nomad is in excellent position due to our unique portfolio of products, which are on target for consumers looking to eat healthy. Nomad is a highly resilient company, and over the past several years, we have effectively managed through several crises. Through those challenges, we have protected our cost and margin structures to ensure that we maintain the right level of investment in our business. In reaction to historic inflation last year, we adjusted our prices in 2022 and 2023, knowing that we would lose volumes. We've lost volumes, but this was a necessary decision to safeguard the integrity and strength of our business. Now that we have stabilized our business, returning to volume growth is our most important strategic objective. We made progress in the third quarter. We also made some difficult but necessary decisions with a few of our retail partners across several markets. This resulted in some volume losses that were outside of our original plan. Absent these dislocations, our volume progress would have been consistent with our sequential volume improvement plan. The majority of these discussions have been addressed, and we expect that these losses will reverse in the fourth quarter and in the first quarter of next year, bringing us back on track. Consistent with our objective to return to share and volume growth, we activated our A&P investment plan, raising our A&P spend in September to 5% of sales from 3.5% of sales last year. Utilizing these resources, we launched new advertising across Europe, and we have strengthened our media profile, leveraging the iconic Captain in our advertising for Nomad's leading fish brands across our key markets. Additionally, we've stepped up our in-store execution with new and exciting promotional activity across Europe, placing our leading brands directly in shoppers' line of sight. This heightened visibility is compounding the effectiveness of our advertising and driving demand. The initial results of our dynamic A&P program are highly promising. We expect our volume and share trends to improve in the fourth quarter, ultimately returning to growth in 2024 and beyond. While our A&P program will be crucial to driving growth, we also remain laser-focused on our other strategic plans. We are harvesting our supply chain cost savings to redeploy in marketing. Additionally, we continue to expand our revenue growth management capabilities. We have made significant progress on both initiatives, and this is helping drive pull from consumers leading to volume and market share recovery. Looking ahead to the end of the year and next year, we are excited about our growth prospects. We expect to see an improvement in performance in Q4, which should carry well into 2024 and beyond. With that, I'd like to recap our third quarter key financial metrics, beginning with revenues. Our reported sales grew 1% and grew 1.6% on an organic basis. This result was ahead of our original expectations. Gross margin was 28.4% with cost pressure offset by our pricing initiatives and cost control programs. Adjusted EBITDA was €140 million, while adjusted EPS came in at €0.43 per share, both ahead of market expectations. At current dollar spot rates, our Q3 adjusted EPS was USD 0.45 per share. In Q3, sales grew by 1.6% on an organic basis, with strong pricing offsetting volume and mix declines consistent with our expectations. For the first nine months of the year, we grew organic sales 6%, and we remain on track to deliver our guidance of mid-single-digit growth for the full year. Our supply chain delivered excellent results, and we remain in a positive cycle of customer service and cost management. This efficiency is helping support our new A&P investments. Our service levels rose to 98.6%, up 160 basis points. The hard work we've done on supply chain transformation is paying dividends at a crucial time. As volume demand picks up and commodity prices stabilize, our efficient supply chain execution will be critical in filling new customer and consumer needs. We have benefited throughout the year from a strategy of selectively assessing the risk profile of each individual raw material category we buy, making or buying more efficiently. Looking ahead, we have begun the process of covering for next year, and we have good visibility on key commodity trends heading into 2024. Our value share was down about 1% in the quarter, consistent with our expectations. However, our new A&P investments were rolled out towards the end of Q3. We expect an improving share trend moving forward. With our business performance on track with our expectations and our share repurchase, we are raising our adjusted 2023 EPS guidance to €1.57 to €1.60 per share from our previous range of €1.54 to €1.57 per share. This represents an adjusted EPS range of $1.66 to $1.69 per share at current spot rates. This guidance excludes the impact of any potential future capital allocation. While on the topic of capital allocation, we are pleased to share significant developments in our capital allocation strategy. Accretive capital allocation is crucial to our long-term goals at Nomad. We deployed €66 million to repurchase our shares in Q3. In the first nine months of the year, we have invested a total of €118 million, reducing our share count by more than 7.6 million. As you may recall, in August of 2021, we announced a $500 million share repurchase program, which was successfully utilized and is set to expire at the end of this year. Proceeding with our share repurchase efforts, our Board of Directors has approved a new $500 million share repurchase program, which will expire by the end of 2026. In addition to our share repurchase program and subject to approval by our Board of Directors, we intend to initiate in early 2024, a regular quarterly dividend which we expect will be a key means of delivering reliable value to shareholders going forward. We will share further details early in 2024. This enhanced framework for shareholder return, bolstered by our strong free cash flow profile, underscores our commitment to maximizing shareholder returns. Since 2022, it has been our plan to raise our media and promotion spending in the second half of this year to drive volume and share momentum. This quarter, we launched many new initiatives to reignite growth, such as our back-to-school Birds Eye campaign in the U.K., our television sponsorship with Croustibat in France, and our Captain Adventures TV and digital activation in Italy. We launched new fish shapes in Austria, Netherlands, and Belgium, reintroducing chicken and cheese nuggets in Germany, and a wave of modern meal solutions in vegetables across Europe. We debuted new advertising with the Captain across our markets, connecting even more with our consumers and bringing attention to our delicious fish products. Fish makes up just under 40% of our sales, and we are the leader across most of our markets. To win at the point of sale, we've stepped up our promotion in supermarket aisles, bringing consumer attention to high-quality branded products. With the new promotion plans in place, the price gaps with our private label competitors have stabilized. Frozen food is a resilient category, and there are plenty of green shoots across Europe. Frozen is back in volume and value growth. September trailing 12-week data shows 1.5% volume growth in the category. There is growth in 12 out of the 16 markets tracked. Additionally, the category is performing ahead of total food in volume terms across several key markets. Consumer behavior is showing signs of improvement as well. In the U.K., for example, we see consumers putting more frozen food products on their plates, for instance, adding peas to fish fingers. For Nomad, the quarter is still in early stages, but we are seeing improving value share and volume trends in some of our biggest markets, U.K. and Italy, especially. There were many great commercial developments at Nomad during the quarter. In the U.K., we launched a back-to-school master brand campaign with Birds Eye to capture the attention of families settling back into the school year after summer breaks. We reached more than 90% of households with our Birds Eye brand advertising during the period. In the Adriatic region, we posted record ice cream sales driven by our excellent portfolio and supported by good weather, high service level and an acceleration in our point of sales program. We benefited from our investment in supply chain, marketing, and innovation. We also launched fish fingers in the region, and the initial results are highly promising. Following the sixth anniversary of Findus in Italy, we are now celebrating the 25th birthday of Carletto, a brand icon chameleon for Sofficini, our beloved pancake product. We celebrated with the introduction of a short movie about his life at a prestigious film festival for kids, creating significant media coverage from national newspapers and TV. Finally, Green Cuisine remains our plant-based pillar for iglo and keeps growing value share. In Germany, one of our core markets for the brand, our value share was up 7% in Q3. This was driven by focused activation behind the new campaign as well as product innovation. We've gotten many questions from investors and analysts about how the retail trade looks with our new promotion plan now in full swing. We've got some great examples here of in-store execution in four of our top markets. In the U.K., we are combining our best-selling and most-loved products in high-visibility ice freezers to give consumers combined meal ideas. This provides a great takeaway experience at an affordable price. We've aligned our fish fingers with Green Cuisine, Goodfella's, and Aunt Bessie's. We also have our famous potato waffles in the mix. In France and Spain, we've ramped up Goodfella's distribution in recent months. In France, we've got a good example here of how we are capturing the consumers' attention for what is a new brand in the country. Notice the high visibility of the display, giving details on the product for new consumers first learning the benefits of this great brand. Since acquiring our Adriatic business, the addition of ice cream to our portfolio has been a great success. In Croatia, we have an example of our King ice cream promotions, especially our highly profitable single-serve versions. In Germany, we are on offense with our fish fingers and vegetables. In this aisle freezer, we have our key spinach products on promotion next to our iglo fish fingers, both Must Win Battles in that market. We have many more examples across our business, and I'm happy to report that the reaction from these programs have been strong so far. With this in-store execution driving sales along with our new media, I'm highly optimistic about the outlook for the rest of the year and beyond. With that, I will now hand the call over to Samy to review our financial results and guidance in more detail.
Samy Zekhout, CFO
Thank you, Stefan, and thank you all for your participation on the call today. Turning to Slide 9. I will provide more detail on our key third quarter operating metrics, beginning with reported revenues, which increased roughly 1% to €764 million. Sales grew organically 1.6%. Third quarter revenues were negatively impacted by 1.1% of unfavorable FX. We delivered gross margin of 28.4%, supported by pricing and cost control. This result was ahead of our plan. As previously discussed, Q3 was the most challenging quarter for gross margins for the year due to the comparison from the third quarter of 2022. Looking out to Q4, we remain on track to deliver stable gross margin for the year. This will be supported by an improving volume trend, pricing, strong cost discipline and robust RGM execution. Moving down to the rest of the P&L. Our gross profit came at €217 million in the third quarter. Cost of goods sold increased to €547 million, an increase of 2%, up €8 million versus last year. Adjusted operating expenses of €100 million were up 11% year-over-year, reflecting stepped-up A&P investment. As a result, adjusted EBITDA was €140 million with adjusted EBITDA margin at 18.3%. Finally, we posted adjusted EPS of €0.43 per share in Q3. This translates to USD 0.45 per share at current spot rates. Turning to cash flow on Slide 10. We delivered strong cash flow in the first nine months of the year, driven primarily by working capital improvements and EBITDA growth. Additionally, we've been highly focused on effective inventory management and cash collection helping our working capital performance. We are well on track for our annual adjusted cash flow guidance target of €250 million at a conversion rate of 90% to 95%. Maintaining this high level of conversion is paramount as we consider our capital allocation strategies for the year and beyond. In the first nine months, we generated €125 million of adjusted free cash flow for a conversion ratio of 56%, our highest first nine-month conversion rate since 2020. Working capital decreased €151 million to €68 million, more than offsetting a €44 million increase in cash interest driven by our refinancing and repricing activities. CapEx of €59 million was up €4 million versus last year as we remain highly disciplined on supporting long-term strategic investments within our business. Changes in cash tax increased €9 million to €53 million, while cash interest was up €44 million to €130 million, driven by last year’s refinancing. With that, let's turn to Slide 11 to review our 2023 guidance, which we are updating today. This guidance is based on foreign exchange rates as of November 1, 2023. First, we are again maintaining our organic revenue projection of mid-single-digit growth for 2023 with our pricing more than offsetting volume declines. As our current A&P investment takes hold in the market and we approach 2024, our expectation is that we will develop a more balanced mix of price and volume. We expect to see the beginning of volume recovery in Q4 rolling into 2024. We are keeping our adjusted free cash flow guidance of approximately €250 million. We expect our cash conversion ratio to be in the range of 90% to 95%, consistent with historical averages. As Stefan spoke to earlier in the presentation, with our underlying business performance in line with our expectations and our share repurchase across the first nine months of the year, we are raising our 2023 adjusted EPS guidance last updated in August. We now expect adjusted EPS in the range of €1.57 to €1.60 per share or $1.56 to $1.59 per share at current spot rates. This excludes any additional impact of potential future capital allocation.
Stefan Descheemaeker, CEO
I will now turn the session over to Q&A. Operator, back to you.
Operator, Operator
Our first question comes from Jason English with Goldman Sachs.
Jason English, Analyst
Great news on the dividend. I look forward to more details to come in terms of payout ratio, magnitude, et cetera, early in the new year. On the quarter itself, I was surprised by retail disputes, a strange time of year to see retail disputes. Looking at your P&L, price growth accelerated on a two- and three-year stack basis. Is it fair to assume that you've implemented new price increases in the quarter? Those are the cause of the disputes? And if so, can you give us a sense of the order of magnitude?
Stefan Descheemaeker, CEO
Thank you for the question. The situation has evolved somewhat. Previously in Europe, we would engage in one negotiation at the beginning of the year. However, with the recent inflation fluctuations, we had multiple price adjustments last year. This year, inflation is decreasing, which is beneficial, but the environment remains unpredictable. I’m not surprised we’re having constructive discussions instead of conflicts, as our dialogue has continued. It’s crucial for us to maintain pricing integrity, and we’ve chosen this path to safeguard the long-term health of the business. While it can be challenging, particularly considering our public status and upcoming quarterly results, making the right negotiation decisions is vital for our future and our retailers. In Q3, revenues dipped by about 2% due to these negotiations, but most of them are nearly complete. There’s still a little left to finalize in Q4, which should positively affect that quarter, especially in terms of margins for Q1. The landscape is shifting, and I believe we may see greater stability ahead, but the frequency of negotiations has risen.
Jason English, Analyst
One change over the past year is that private label brands are no longer keeping pace with price increases as they had before. The slides indicate that private label price gaps remain stable, suggesting they have not kept up with your recent increases. If you are implementing more price adjustments, are you seeing them respond, as indicated by the stable price gaps? Additionally, you mentioned increased merchandising activity aimed at boosting volume, which is understandable. Are you having to offer any kind of net price adjustments to support that merchandising or address tensions with retailers?
Samy Zekhout, CFO
Sorry for my voice, I have a bit of a throat issue, but I'll do my best to answer your question. Regarding the private label, it's crucial that we maintain effective stabilization, and there's currently a gap that we believe we can manage while leveraging other aspects of our portfolio, particularly promotions, to stay competitive and stimulate growth. Previously, the price gap was in the double digits, but it has decreased to just over five percent now. What we are focusing on is enhancing our promotional activities, increasing our advertising and promotions budget, and also considering the changes in inflation dynamics we anticipate for the future. This is where negotiations and compensation become important. Our clear objective is to stimulate share growth and reverse the volume trend, which has stabilized and is on track for recovery by the first quarter. We expect to see improvements in the fourth quarter as well.
John Baumgartner, Analyst
Stefan, it appears that in the most recent Nielsen data, Nomad has experienced some improvement in market shares across several countries, although Italy remains weak. I believe the pricing issues have been particularly challenging there. How do you view the time it takes for consumers to shop the aisle, become aware of promotions, and take advantage of them once they are in the market? What do you consider the typical purchase cycle for your categories? Is it four weeks or six weeks? I'm trying to better understand consumers' willingness and ability to engage with promotions once they are available.
Stefan Descheemaeker, CEO
To your point, I think the frozen aisle is obviously more like a destination. The average country by country, but let's say, give or take, is around 4 to 5 times per year. So you can imagine between the moment you're starting with your promotion and the impact it has in the market, it takes a bit of time. So what we see in Italy, we see some green shoots. It's very much in line with what we were expecting. The last thing we need to do is change course. We've taken that, but on the contrary, we have started our RGM program the fastest, especially in fish and what we're starting to see some green shoots. Definitely, it's going to be complemented by A&P on top. The stabilization of COGS and labor costs is starting to increase as well, especially in a country like Italy. We believe that at the end of this quarter, and definitely next year, with the A&P, we are very confident that Italy will reverse the trends, which is what they are starting to do, especially in fish.
John Baumgartner, Analyst
Okay. And then thinking more about the macro into 2024 and the persistent inflation in Europe and the impact on consumers' budgets and shifts in food spending, when you're lining up these brand investments, how are you thinking about the competition just alternatives for consumers? Are you mostly focused on winning in-store against other frozen or fresh categories? Is there also an angle here to try and capture some food spend from outside the home? I guess what are your expectations for how or where you'll source that incremental volume from going forward?
Stefan Descheemaeker, CEO
The first thing is we've lost some market share. Definitely, there is a piece of that we want to regain. That's the first thing, that's within the area and that we think that with the programs we have, we can do this. We believe that we have this program of the Must Win Battle, which we expect to grow in a disproportionate way compared to the others. One more thing you will see is we're going to start in a very selective way to work on new categories, country by country, very far from what happened something like 10 years ago, which was a bit of everything. In some countries, this category could be poultry; in others, it could be freeze dried. We have the right to win. We're going to do it. There's going to be a long-term investment. That's a combination of different things. When you think about poultry or pizza, you have a contest and competition not only with frozen but also with chilled, so that's going to be the framework for us. Definitely focused on all Must Win Battles with RGM and A&P. We think that within this frame, we will gain market share. We are also starting something which is again, very focused behind new categories, which will impact the frozen food but definitely also above and beyond frozen food, which, in and of itself, is doing well compared to many other categories.
Rob Dickerson, Analyst
Stefan, maybe just to kind of follow up on what you just said. I think in the prepared remarks, you'd stated volume growth was back for the broader frozen category in 12 out of 16 markets. I mean, clearly, a few things going on in Q3 that you're not posting the volume growth, but then also it sounds like there is some incremental pricing that's gone through the market. As we get through Q4, as you say, you think the volume trajectory improves. Should we be thinking that hopefully, as you get toward the end of the quarter, that you start to see volumes stabilize, and therefore, there could actually be volume growth next year despite the pricing because of ongoing higher A&P and Must Win Battles?
Stefan Descheemaeker, CEO
To your point, I think the programs we have, along with more stable macro conditions, will lead us back to our previous strategy that focused on volume growth, higher sales, increased EBITDA, and double-digit EPS. We aim to return to this approach with our investments in A&P and RGM, along with a milder macro environment. We are confident that we will gain market share and achieve volume growth next year. While I can't specify when this will occur, I am very optimistic that we will see improvements in both market share and volume next year.
Rob Dickerson, Analyst
All right. Super. And then, I guess, Samy, just on the gross margin, I think you had said Q4 gross margin kind of flat for the year. I think that kind of implies Q4 gross margins essentially flat. But at the same time, I'm hearing some stuff about pricing and RGM initiatives and sure there's productivity. So I'm just curious kind of with some pricing coming through, it sounds like maybe that is clearly offsetting some higher costs. Otherwise, I kind of would think gross margin would be up.
Samy Zekhout, CFO
You have a bit of an effect as well of mix because we had ice cream in Q3, and then we don't have ice cream in Q4. When you look at the trends, if you look at first three quarters to the fourth quarter, versus a year ago, you started to see some improvement there, which is going to support the projection of flat gross margin for the year. Technically, the cycle has been that the first three quarters were slightly above 28%. In Q4, it's going to be slightly lower than that. But for an average of the year, that's going to be flat versus a year ago. It's clearly the investment we are making in terms of productivity, in terms of investment behind our core brand and particularly on mix on our core category, and the Must Win Battle in particular is going to start to pay off. We see effectively the trajectory starting to improve into the next year. But for this year, we definitely maintain our flat gross margin for the year.
Steve Powers, Analyst
On the gross margin, while we're discussing it, you mentioned that the third quarter exceeded expectations. What contributed to this improvement? Was it stronger ice cream sales, or were there other factors that drove this upside compared to your expectations?
Samy Zekhout, CFO
Well, this is expectation. I think we've been slightly higher, as you know, because effectively we had a bit of a better performance on the top line if you really look at that as expectation. Yes, ice cream has been doing really well there. There's a mix factor there and the continuation of the return that we are getting behind all of the cost savings and productivity initiatives. I mean, as you know, we're putting a lot of focus and a lot of effort in COGS in particular. But it's a combination of elements that we see. It's not only just the saving in itself, but you really have a good combo on focusing on Must Win Battle, stepping up effectively the mix by investing behind the Must Win Battle. RGM starts to get in motion on that, which is giving us a bit of a breathing space there, which we expect to continue to maintain and again, securing our hypothesis and our projects for the year at about flat gross margin.
Steve Powers, Analyst
Yes. Okay. Very good. And you mentioned 100% coverage and strong visibility on costs into '24. Is there anything you can offer us in terms of an overall cost outlook? Or any color on expected kind of timing of the cost curve into the next year?
Samy Zekhout, CFO
At the time we give the guidance there because, frankly, I have to say, so far, we indeed have covered for the year. That's obviously because we are now, frankly, at the level where we are. But getting into the nature, we're starting effectively to lock some of the deals available in the market. There is effectively some deflation on fish, some slight inflation on some of the veggies, and some more than others. We are really trying to look at the market dynamics to frankly, make sure that we remain competitive versus the other players in the market. We have a COGS structure that enabled us to adjust the prices as necessary through promotions as we move forward to stay competitive there. After two years of heavy inflation, we are seeing a flattening and a decline in some of the categories, like fish for example, and a bit of an increase on the rest. Rest assured we'll keep you up to date on this stage, but we are maintaining the strategy of trying to capture as much as we can from the market in order to really help create value to invest in the business.
Steve Powers, Analyst
Okay. That's very helpful. And last question, if I could. As the I think everyone is trying to kind of get a pulse and trying to track your progress on volume recovery and market share improvement as you make good on the investments that you're currently making. As we do that from the outside, is tracked channel data a good barometer of your progress? Or is there a reason to believe that tracked channel performance will either lead or lag total portfolio performance?
Stefan Descheemaeker, CEO
Well, directionally, it's acceptable. However, there are some considerations regarding the differences between sell-in and sell-out, as well as the food service component. Additionally, some countries are not as well covered. Generally, it's alright. With Tony, we can provide more precise insights into the discrepancies between publicly available numbers and how to arrive at the final figure. But overall, directionally, it's acceptable.
Operator, Operator
Our next question comes from Jon Tanwanteng with CJS Securities.
Peter Lukas, Analyst
It's Peter Lukas for Jon. You guys covered most of the stuff here in the prepared remarks and Q&A, but if you could just kind of maybe summarize the biggest puts and takes you're seeing in regards to working capital and cash flow expectations going forward.
Samy Zekhout, CFO
Yes. I think as we have mentioned in our cash flow is absolutely an essential critical measure for us because it drives effectively a lot of the commitment we have to driving shareholder value and through effective capital allocation. We clearly have been investing a lot of efforts in order to step up our performance in all of the areas of working capital. Let me get them one by one. On receivables, we have to clearly get the perfect match between the overall receivable and the collection. Honestly, at this stage, we're really making a very good progress and having set up our performance from that end. Not necessarily in the change itself but in the efficiency of collecting effectively money beyond our receivable. On inventory and payables, the point there was, as you recall, a year ago, we stepped up our inventory because of all of the conditions we have with disruptions in supply, war and specific supply issues related to some of the ingredients. We have taken the journey of the supply chain team, which has done extraordinary work to really drive down our inventory to support our business requirements. You see that in the customer service levels that are very good. You have seen a step change in improvement in our inventory that has been down together with our receivable that have now integrated to show the one-off effect of the past, particularly the unfair trade practices that have dragged an impact on the overall payables. Net-net, if you want receivable, clearly has huge focus on a per-market basis to ensure we perform in line with expectations. Inventory is on a journey to take the overall inventory level down while maintaining top performance in the area of customer service. The totality of all that is effectively enabling to free up an amount of cash that is enhancing our performance. From a cash flow standpoint, we just reiterate the point that this business is designed to deliver 90% to 95% of free cash flow conversion, which amounts to €250 million for this year. We intend to continue to do that and to do each and every effort to generate more cash beyond that in the out-years.
Peter Lukas, Analyst
Very helpful. And then just last one for me. What is your expected net interest expense following the repricing?
Samy Zekhout, CFO
For the repricing, we'll get back to you. The interest expense for the overall year is expected to be around €118 million to €150 million overall for 2023.
Operator, Operator
And we have reached the end of the question-and-answer session. I'll now turn the call back over to Stefan Descheemaeker for closing remarks.
Stefan Descheemaeker, CEO
Thank you for your participation on today's call. After the unique challenges of 2022, we continue to deliver organic sales growth while protecting our margins and investing in the long-term health of the business. Our A&P program is poised to drive growth. Our supply chain is in great shape and our RGM capabilities are expanding with each new quarter. We are already looking forward to an exciting 2024 of volume and market share recovery. Once again, we are on track to deliver our ambitious financial objective for 2023 and beyond. Thank you all. Operator, back to you.
Operator, Operator
Thank you. And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.