Bill Ackman Comments on Nomad Foods Ltd.

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Dec 16, 2015

Nomad Foods Ltd. (NHL)

Nomad’s underlying frozen food business exhibited challenges during the quarter. Market-based pressures from the growth of discount grocers and private label, coupled with execution issues, have caused softness in Nomad’s Iglo frozen food business. Like-for-like sales have declined

7% year- to-date. Management has put in place a plan to arrest these trends and return to growth, but these changes will take time to have a material impact. Despite the revenue decline, the business has remained resilient from a profitability and cash flow perspective, with year-to-date EBITDA down 5% on margins which were essentially flat at 19.5%.

Nomad has built a strong team of executives who are working diligently to improve Nomad’s core operations by growing revenue and reducing corporate overhead and trade spend (promotional allowances and slotting fees). We believe the extraction of efficiency gains will allow the Company to preserve and grow margins while re-investing for growth.

The most material development during the quarter was Nomad's announced acquisition of the non-UK assets of Findus. The Findus assets are highly complementary to Nomad's existing Iglo business, as they are in similar frozen food categories with complementary geographies. Iglo's business is the leader in branded frozen foods in the UK, Italy, Germany, and Austria, while Findus has a strong position in the Nordic countries and France. After combining these businesses, Nomad is now 2.5 times the size of its next-largest branded frozen food competitor in Europe.

In addition to its strategic benefits, the Findus transaction has favorable economic characteristics. The ÂŁ500mm acquisition price represented 9.7x trailing EBITDA, and about 6.5 times pro forma EBITDA including expected synergies, a price which we find attractive given the business' modest capex needs and moderate cash tax rate.

Pro forma for the Findus acquisition and its expected synergies, Nomad has said it expects to earn about $1.35 per share. With the recent decline in the stock price to about $ 11 per share, the business is valued at less than eight times earnings and is moderately leveraged at about 3.7 times pro forma EBITDA.

From Bill Ackman (Trades, Portfolio)'s Pershing Square Holdings third quarter 2015 letter to shareholders.