Greenyard NV (GREEN) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you for joining our full year 2019/2020 earnings conference call. We will be speaking up because we're also trying to respect social distancing, so if there is any issue with the sound, please let us know. My name is Dennis Duinslaeger. I'm the Investor Relations Manager with Greenyard. And joining me in today's call are both Co-CEOs, Mr. Hein Deprez and Mr. Marc Zwaaneveld; as well as Mr. Geert Peeters, our Group Chief Financial Officer. I hope that you had a chance to review the press release that was issued earlier this morning. And you may also visit the company's website at www.greenyard.group for a copy of today's release as well as to register for future distributions. This conference call is being webcast live on our website and will be available for replay in the coming days. May I remind you that most of the information we will be speaking of to you today, including the answers we give in response to your questions, may include forward-looking statements. Such statements reflect the current views of management regarding future events and involve known and unknown risks, uncertainties and other factors that can cause actual results to be materially different from any future results, the performance or the achievement expressed or implied by such statements. Greenyard is providing information as of this date and do not undertake any obligation to update these statements in this presentation or in this information. We disclaim any liability for statements made or published by third parties and do not undertake any obligation to correct [ such statements ]. With these forward-looking statements done, with that, I'm very pleased to turn over today's call to Hein. Hein, the floor is yours.

Thank you, Dennis. Good afternoon, everybody. 2019/2020 marks the recovery of Greenyard. Greenyard needed a transformation to cope with the challenges of today's markets. Numerous initiatives were successfully implemented, and our return to financial health is driven by the continued efforts in our transformation. What's important with this is that the transformation, which is led by Marc Zwaaneveld, gave strong results over the last years. Our net sales growth was 3.8% and went up to EUR 4.061 billion. This sales growth is a result of our commercial relationships and the ramp-up of long-term partnerships. Also we terminated a few loss-making volumes over the last year. But also important [ in this ] is our sharp increase in adjusted EBITDA of close to 50% to EUR 95.7 million. This is also a result of transformation initiatives, cost control, workforce rightsizing, efficiency improvements, purchase leveraging and risk control. In a way, it also prepared us, this transformation, as better for the impact of COVID-19. We used the benefits of the group to handle crisis. Through COVID-19, the relevance and importance of fruit and vegetables and a secured and guaranteed supply chain resurfaced. I'm happy to see that we rose to the challenge, and we are able to secure the food supplies together with our growers and customers. We demonstrated [Technical Difficulty]

Hi, everyone. There was a technical difficulty. Can you please signal whether the audio is again restored?

Okay. Good afternoon, everybody. Marc Zwaaneveld again. There has been a sound problem. I'm not sure where you lost us. I will go one step back about the transformation plan. I hope I'm not doubling, but I would like to share with you. So the transformation plan that was announced at the end of last fiscal year and immediately, rigorously implemented in the group was able to restore the trust of our stakeholders. We have further built on our relationships with our customers, working in a very customer-oriented manner, and it allows us to revitalize some of these relationships and take important steps, and you can see that with the increased volumes we presented. The second pillar, operational excellence, has been a cornerstone of our transformation plan. Important savings were realized through rigorous cost discipline and our working smarter and joining forces between the countries and the segments. These initiatives were clearly not one-offs but ongoing efforts. In that sense, there's also still a way to go, and we will continue our efforts to unlock the full potential of the group by using our skills to our benefit. Good efforts have been made in optimizing efficient transport flows and reducing transport costs, group procurement programs, workforce rightsizing and the development of a group sourcing program. The third pillar, rationalization of our footprint, was equally important. We set about to divest certain activities and/or entities in the past year, with the objective to free up financial and nonfinancial resources and to focus on our core activities. In the meantime, we have divested our frozen factory in Baja, Hungary and our flower business in the U.K., various assets in Netherlands and Germany, and we signed the share purchase agreement for the divestment of our logistical activities in Portugal. It also created a mindset that we need to think about what we need for servicing our customers in terms of assets and operations. With the recent downturn in financial markets, we will see what the future will bring. In any event, it will be part of our normal business going forward to evaluate whether further divestments will be necessary. All these actions and initiatives have been supplemented and completed by various other initiatives [ originating ] top down and bottom up. It is becoming part of our culture to work towards a continuous improvement. Therefore, I'm convinced that our efforts are not at an end yet. We will absolutely continue these efforts in the coming years to further untap a lot of potential we see ahead of us. Currently, I think it is appropriate to turn the call over to Geert to discuss the financials in more detail.

Okay. Thanks, Marc. I hope everyone has access to the slide pack which we are presenting now because it makes my explanation a bit more visual. And purpose is to look into the key financials and that I will do based on the pictures on the next 5 slides. On Slide 5, we're looking, first of all, of course, to the sales figures. Hein already mentioned there that we increased by 3.8% to EUR 4.061 billion. And interesting to see is -- and that you could derive also from our press release is, quarter-by-quarter, that our revenue was really accelerating. We started in the first quarter with a slight decline, but Hein also mentioned there that we got rid of some loss-making contracts and then we were really ramping up with, first, EUR 17 million, then EUR 59 million and the fourth quarter even above EUR 100 million extra revenue. As to EBITDA, you're also well informed because of the press release we did already a month ago pointing out that our EBITDA was increasing from EUR 64.5 million to EUR 95.7 million, almost 50% higher. And that also comes, of course, with a higher adjusted EBITDA margin. We go up from 1.6% to 2.4%. And important to mention because we know we're in a low-margin business but also that margin is more and more robust because of the different partnerships. Of course, important is the evolution of our net debt and bringing down our high leverage ratio. And there, we're particularly proud on what happened over the last year because we had a spike end '18/'19 of a leverage ratio of 7.1, and we were able to bring it down to 4.4. And there, you all know that we guided before our intention is to bring the company back to 3, 3.5 in the coming 2 years. That's what we're still working on, and that will be a healthy basis now to go further into that direction. And the last key figure before going into more detail on EBIT and below-EBIT items is EBIT itself. Last year, it was far negative. You'll remember it was minus EUR 133 million. This year, we almost ended breakeven on EBIT level at minus EUR 2.6 million. I will explain on the next slides or in 2 slides how we come to that amount. Very important already to mention is that this year, in the first half year, we still have a negative impact because of the sale of Flowers UK of more than EUR 20 million. So it's a one-off impact bringing us to that EBIT figure. And the second year half, the EBIT already rose to EUR 12.5 million positive. But we come back to that on -- in 2 slides. First, I want to dig into the 2 segments. We report in Fresh and Long Fresh, as you know. And the good news is that in both segments, we were doing much, much better. First of all, if you take the Fresh segment. Sales increased by 2.3%, but adjusted EBITDA increased even with almost 74%, going from EUR 25 million to EUR 43 million. Of course, the main reason is, like Marc explained in detail, all the transformation actions we're taking in different areas as well from a cost efficiency point of view but also the partnerships and the long-term relations we're deepening and further developing. Also looking towards the future, we can tell that there are still transformations further ongoing. And also we strengthened management teams in several countries, putting the right bases for further growing the profitability. If we take the other segment, Long Fresh. There, of course, particular was the year '18/'19 because there we were severely hit by the Listeria recall. We can confirm again that Listeria is completely behind us and that we could completely recover the Frozen business. Further on, in this segment, we were also continually building in -- on partnerships. For example, we mentioned in the press that we have the full fruit and vegetable assortment with Tesco, which is quite unique, and that's really bringing a lot of profitable growth. At the same time, we also have transformation in Prepared in Long Fresh. For example, we're improving capacity utilization, production efficiency. And a big step or a big driver in all this is a better cooperation between facilities and countries. Now if we go to the next slides, we want to come back to what happens below EBIT. And I know it's more complicated slides. In the annual report, you will also find more information on it. But first, if you look to the EBIT level, we ended at minus EUR 2.6 million. And as you can note, first half of the year, it was minus EUR 15 million. Second half of the year, it was plus EUR 12.5 million. So you see clearly a positive evolution. At the same time, last year was far negative. And if you take the bottom of the page, there you find all the adjustments between EBIT and EBITDA. The major one is, of course, the depreciation and also the IFRS 16 impact. But very important is to stress again that there were quite some negative impacts last year, and I mean '18/'19, which we do not have anymore in '19/'20. First of all, we have a big impairment on the goodwill. There were no goodwill impairments anymore in '19/'20. Also in '18/'19, we had the Listeria costs. In '19/'20, we could say that we took sufficient accruals. We have also finalized the insurance receipts, and it gave a slightly positive impact, so we could slightly reverse the provisions taken in '18/'19. Same for reorganization. You know we did some workforce resizing. Accruals were taken in '18/'19 but also here in '19/'20. We could partially reverse that and do the full program with a slightly lower cost. On the other hand, as I mentioned before and you can see in the first half of the year, the result on sale of subsidiaries and assets, including impairment. There, you have a figure of EUR 26.4 million, of which EUR 28.5 million in the first half of the year. It's a noncash impact which is in the EBIT but also in the net result. And there are 2 main items. First of all, it's mainly related to biological assets related to Flowers UK. These are projections of future cash flows on the balance sheet which we had to write-down because they cannot be realized if you sell a company, and we have some impairments on the mushroom business. So these were the main impacts that's there already relates to the first half of the year. For the rest, you will note that adjustments are mainly related, of course, to adviser costs and costs related to financing because we should not forget that last year, there were a lot of noncore M&A processes. We also looked for cornerstone investor. But as you'll remember, in November, we decided to terminate, to stop that process and to continue on our own strength. And we did the same also with the sale of our core business. Of course, there were some adviser costs involved that we had to stop. And then we decided with the banks to continue on own strength, and we got a waiver agreement until December '21. So in a nutshell, we still know that we have a result of minus EUR 68 million in '19/'20, but I stress again it's a noncash impact in the first half of the year. And I can tell you, for the next half year, if we go to 2021, the adjustments will be much, much lower, and at the same time, also our interests will decrease. In the meantime, we repaid the retail bond. We're also at lower debt levels. And also our interest [ grids ] was decreased, as you can read in the annual report. Then the last 2 slides on finance. First of all, the cash flow, most of the elements are already mentioned. But we went for a net -- from a net financial debt of EUR 456 million to EUR 425 million. So it means we decreased the net debt with about EUR 30 million. Of course, one of the main elements was the better results. At the same time, you note on the slide we have EUR 19.9 million, it's the second light green bar, of working capital improvement. And that's a very important step we're -- also taken in the company. The cash mindset is really one of the key culture changes we're bringing. And that means that we have a lot of actions and attention to everything related to debtors, creditors and inventory. And there, we're gradually improving our working capital, and we will continue doing that in the coming year. One other, another -- the third green one is, of course, the disposals. And there, we realized EUR 20.7 million as proceeds. For the rest, the red bars, there's, of course, the nonrecurring elements but those that were related to cash. And those are related to, for example, advisory costs. Taxes, we have minus EUR 6 million. CapEx, there, I want to stress we ended up minus EUR 36 million. It's lower than over the last years, but we can confirm that we did all the replacements that were needed to support the business. And we even did some interesting growth projects. Take, for example, the start-up of a new distribution center in Boom for Bakker Belgium in relation to the new Delhaize business. So there were also some important growth investments. And last but not least, the finance and interest costs were far negative. As I explained already, we were at the high end of the leverage. We also still have to pay interest of the retail bond, but that will decrease very, very fast now in the coming months. And then last element is, of course, the leverage evolution. I told you already we went down from 7.1 to 4.4. 4.4 is back to the level we had 1.5 years ago. And our intention is by the end of our facility agreements, that's December '21, we go below 4. And then in the subsequent year, we want to be back at a level of 3 to 3.5. So that's the intention. You can also see the IFRS 16 impact on the slide, yes. IFRS 16 comes with some additional leasing debt. It's because we have the strategy in Fresh, not in Long Fresh but in Fresh, that we don't own the -- most properties, and the reason is to give us more flexibility. It's different in Long Fresh. There, we own most of the property. So it comes with a leasing debt. But note also that EBITDA is EUR 37 million higher if we take out the rent. And that gives then a leverage ratio of 4.9, which is also below 5. I will give back the word to Marc, and I'll hear some questions later on from you.

Okay. Thank you, Geert, for this insight. A few elements I would like still to highlight. First of all, about COVID-19, I think that Greenyard has proven to be resilient and agile to cope with this crisis. We were able to deliver a lot of volume. We never hampered to do so in order to serve our customers and consumers. And also, these customers and consumers, we service their understanding of the relevance and importance of our food supply chain. This has also been initiating questions on the sustainability of each of one of our actions. It has strengthened our belief to also become a front-runner in our sector in sustainability. We therefore indicate clear and transparent targets. First, climate action. We are satisfied to be active in fruit and vegetables, a food category with an exceptionally low-carbon footprint. Nonetheless, we are constantly striving to reduce our carbon emissions along the value chain. The prime source of carbon emissions in our operations is energy use. With an annual consumptions of almost 2.5 million gigajoule of energy, Greenyard is continuously investing in the latest technologies to reduce consumption in all its processes: cooling, heating, warehousing, transport, logistics and packaging. We actively seek to use alternative energy sources such as solar panels and biomass production. Greenyard is aware of its responsibility to reduce carbon emissions that are beyond its direct influence. In recent months, we have made the necessary efforts to map our company carbon footprint, scope 1 and 2; including an initial analysis of our indirect emissions, scope 3. Further efforts to fine-tune data are ongoing to guide improvement actions throughout our entire value chain. Our target is a full publication of our company's carbon footprint including the 3 levels emissions. Second pillar, water stewardship. Water is a critical resource for growing food and vegetables, and Greenyard is particularly conscious of the need for rational and sustainable water usage in its own operations and throughout the value chain. Our water risk assessment initially focused on water-intensive crops such as avocados and mangos. The scope of the assessment will now be expanded to contract growers for the Long Fresh segment. In risk areas, we are developing dedicated programs to ensure sustainable water management in close cooperation with growers. Our target: water risk assessment for 90% of our grower base by 2022 and 100% 3 years later. Third pillar, responsible sourcing. Every year, Greenyard sources more than 2.5 million tonnes of fruits and veg from a worldwide network of carefully selected growers, assuring social standards is of the utmost importance for Greenyard throughout the value chain. For this reason, Greenyard has established the ambition to conduct business with suppliers that can assure compliance with international and national employment legislation, particularly in risk countries. Suppliers are requested to assure compliance using assessment tools such as GLOBALG.A.P. Risk Assessment on Social Practice or certification schemes such as the Rainforest Alliance and so forth. Our target: 90% responsible sourcing by the end of '22, 100%, again, 3 years later. Last pillar, zero waste. In 2019, Greenyard used 75,000 ton of primary packaging for its products. Since most waste is generated during the consumption phase, Greenyard faces major trade-off between packaging and shelf life. By being careful to use packaging only when necessary and by designing it to be recyclable, reusable and lighter, the company protects and extends the product life while helping to reduce food waste at the -- sorry, at the consumer end. Our target: 90% (sic) [ 99% ] of our consumer packaging will be recyclable by '22, 100%, again, 3 years later. And then I want to finally hand over to Hein.

Thank you, Marc. This target indeed underlines our ambition to be a driving force in societal change, and it also leads us to our outlook. Based on our current expectations, Greenyard expects the adjusted EBITDA, excluding IFRS 16 impact, for the full year ending 31st of March 2021 to range between EUR 100 million and EUR 105 million. Of course, this outlook takes into consideration potential uncertainty surrounding the COVID-19 virus aftermath but also any post-summer situation and the implication on the world economy. Also based on the available information today and the available assessments, Greenyard is not expecting the weather conditions of the past months to have a material impact on the guidance or results. With that, we can turn the call over to the operator for the questions and answers session.

Thank you, Hein. I see that we have a couple of questions already in the box. Let me give maybe 1 minute for additional questions, and then we will go through the questions.

The first question is commercial relationships with our retailers like Delhaize, Carrefour, REWE and Tesco, which percentage of total sales, at about. What important with this is the difference between Fresh and Long Fresh. Within Fresh, I think we are, on this moment, at -- 60%, 65% of our business is in relationships, in partnerships with these retailers. And in the Long Fresh division, like where we have the business with Tesco developed in the U.K. there, and these typical partnerships models, we are at around 15% of our sales, 15%, 20% of our sales, at this moment.

And please remember that those partnerships give quite a stable margin also in markets which are not in favor. So I think that's a good trend we are currently in. Going to next question. The first one is about the guidance. The guidance is prudent. But at this moment, we have given this one because a company like ours, with the history of the last 2 years, we want absolutely to be certain that we will match our guidance. And of course, if things develop very well, there -- we, of course, hope, and we are working on maybe to outbeat this guidance. But for the time being, we also have seen that we are resilient to the coronavirus. We are not sure yet about how economy is developing. But in that sense, we are well positioned. And it is too early to say that we have potential, but we hope to further come back on that after we have half a year of proof. I can tell you that the first 2 months are very encouraging. But for the time being, we prefer to be prudent in our guidance. And I think I have said enough on that one.

Next point, I think, Geert, is yours about the capital refinancing -- capital structure refinancing. It's 17...

Okay. [indiscernible]. Okay. So the next one, there are in fact 2 questions. On the refinancing itself, we -- of course, we're looking at -- to [ a role ] in December '21, so we still have quite some time. And yes, our planning internally is that we start doing our first option analysis in the coming months. Because of COVID, of course, over the last 2, 3 months, it's what's -- not the moment to talk to investors. We have other things to do and not to talk with banks, but we will take that up in the coming months. We're confident that there are several alternatives that we can pursue [ to be in time ], so we will have more information on that in the coming 6 to 12 months. On the assets, and also question 19, it's referring to that one. If we look to the disposals we did over the last year, that was an amount of somewhat more than EUR 20 million. Somewhat less than half of the amount was related to Flowers UK. All the rest was related -- and we don't, yes, disclose separate figures for this, but they're related to the factory in Hungary that was sold at the beginning of the year together with the personnel. And we had some asset disposals. These are mainly a couple of locations in Germany. These were locations which were not needed anymore in the footprint of the company. And we also sold a location in the Netherlands which was not needed anymore for the footprint with our retail relation in the Netherlands. If we look forward, we don't have any guidance on asset disposals. We also don't have a fixed program anymore. We consider asset disposal as part of normal business now. That means that we continually look to the portfolio of our assets and look whether it still fits or it's not fitting anymore. Of course, one which will still be closed in the coming weeks is Portugal. It's also mentioned in the subsequent events. And Portugal, we have SPA. And there, at latest, end of July, also that one will be closed.

The next question, the lack of rain, if it is hurting our business like 2 years ago. What important is this year is the third year in a row where we have important drought issues, so we start to live with it and to cope with it. And like I mentioned already in our explanations is that we are not having or expecting that this year the weather conditions of the past months will have a material impact on our results and on our guidance that we gave.

Okay. Thank you. And [ the second is ] for you, Geert.

Yes.