Greenyard NV (GREEN) Earnings Call Transcript & Summary

Good day, everyone, and thank you for joining our first half 2020/2021 earnings conference call. My name is Dennis Duinslaeger. I'm the Investor Relations Manager with Greenyard. And joining me today in our discussion are both Co-CEOs, Mr. Hein Deprez and Mr. Marc Zwaaneveld; as well as our Chief Financial Officer, Mr. Geert Peeters. I hope that you had a chance to review the press release that was issued earlier this morning. And of course, 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 distribution if not yet the case. Just to inform you that this conference call will also be available for replay in the coming days and, on the more formal part, that the presentation may contain forward-looking statements, which reflect the current views of management regarding future events and involve, of course, known and unknown risks, uncertainties and other factors that may cause the actual results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. We are providing the information as of this date, and we do not undertake any obligation to update these forward-looking statements contained in the presentation in light of any new information, future events or otherwise. We disclaim any liability for statements made or published by third parties, and we do not undertake any obligation to correct inaccurate data information, conclusions or opinions published by other third parties in relation to this or any other information issued by Greenyard. That's for the more formal part. Welcome, everyone. Thank you for joining our call. And with that, I'm very pleased to hand over today's call to Mr. Hein Deprez.

Thank you, Dennis. Welcome, everybody, on the call. Welcome to join us. Today, we are able to announce positive results for the first time after 2 years, a positive bottom line. As you will have seen, despite currently working in challenging circumstances in a fast-changing environment, our strategy is helping us to achieve more business and stability in our earnings. Our sales and adjusted EBITDA have increased to double digits, but also, our operating cash generation and our leverage are clearly progressing in the right direction. We have a very strong faith in a healthy future for Greenyard being rightly positioned, good focus and a continuous improvement of our mindset in the organization. Not only do we grow in sales and adjusted EBITDA, our margin is also becoming increasingly stable. We are derisking Greenyard, and we'll continue to do so. Today, the leverage is already almost half of 1 year ago. These positive financial results will help us in the further process of the refinancing, a process that we have started and where conversations are heading in the right direction. Finally, we have published our sustainability report for the past financial year last week, expressing our ambitions and new commitments for the future. For us, adding economic value and sustainability go hand in hand. We live in very uncertain times, difficult times even for many among us. Greenyard is not 100% immune, but we are very, very careful. In terms of both COVID-19 and Brexit, we have immediately taken actions in consultation and cooperation with our customers and suppliers to find solutions. In the Brexit story, you know that we have a very strong position in own factories and production entities in the U.K. And also, for our Frozen division and also for our Fresh division, we have our own distribution platforms and our cooperations and partnerships with local growers in the U.K. So we were prepared for this and for the future. And we can count for the future for a strong progress further in this country in the U.K. On COVID-19, we had also in our Long Fresh division a lot of negative effect in our segment of foodservice. But that was compensated by extra volumes that we had in our retail sector, around 20% of the volume in our long fresh food industry. What's important with this is that this integrated model that we are building with our customers, these partnership models are really bringing the results that we were expecting. And certainly, in circumstances like today as of the COVID, close cooperationship and integrated supply chain helps us to perform a lot better. And that is paying off today. In addition to our 3 divisions -- In addition, our 3 divisions are strengthening each other. Our Fresh division, our Long Fresh with the Frozen and the Prepared are helping us to develop further our group. We leverage group expert functions and encourage our organization for cross-divisional collaboration. What's important with this is that, for example, like in our Frozen division in the U.K., we could implement a same model like we have in Fresh. We did that with the Tesco supermarket chain, the largest buyer of frozen vegetables and fruits in the European market. And we integrated our model with Tesco, which was very successful. Also, the development of our fruit -- frozen fruit business is helped by our Fresh division because of our production entities or our sourcing entities all over the world, which are helping our Frozen division to develop their business with a very light asset model and for the further development of the turnover of the frozen fruit segment. More importantly, what also is happening is the change of culture in the organization. Step by step, we are capable to implement our strategy. And that is thanks to the big work done by Marc Zwaaneveld and Geert Peeters to create a stable organization where we have a lot of discipline and we have a lot of structures that they implemented so that we can create a stable foundation where we can encourage our people to use the structure, which was built over the last years to implement the right strategy and our right vision. I'd like now to pass the word to Marc.

Thank you, Hein, and good afternoon, everybody. If we go to the next page, I wanted to discuss with you the 3-pillar approach. The first one is the customer portfolio. If you follow us already for a longer time, you know that we are really working and implementing our partnership model with successful new introductions to, for example, REWE and also Delhaize. And also, we are working towards more of that. That means that, as you know, also in the crisis situation that the partnerships model remained firm, and they were solid margins. So the more we have in these kinds of relationships, the more stable and resilient we are as a company, which is important. Second to that is that besides the partnerships, we are also moving towards more an added value services company. And you all know that there's also then increasing in margins. And that is also the shift. We are working on the non-partnership clients we have. Having said that, so that we are more resilient and agile, we, of course, have to work on our operations. We did that since early last year. We did our workforce rightsizing. You know that. And also for the future, we are further working on this. We will do that via a continuous improvement program. It's now embedded in our organization. And we absolutely will further work especially also in the transport logistics optimization. There's still a lot of pent-up potential in there. And I will come back in a few minutes about sourcing, which is another real important pillar for our future going forward. And last but not least, of course, assets. We have rationalized our footprint. We focused a lot on cash management. And of course, this has also been demonstrated in our numbers so far, in our improved working capital, in a faster debt reduction as anticipated and also working the 3 all together in one program. If you look at the next page, you see that we are in development of those partnerships. And this year, it was a year of ramp-up of certain of the partnerships. And of course, in the next year, you will have the full year effect, which is positive. And also because of this success, there are some other retailers very interested in our model. But I also have to warn you, that is, of course, not created overnight. This is a lengthy process to find each other to see every program is fine-tuned, is specifically tailor-made. But we have some good confidence in that over time, we will further develop this. Now this is part of your customer portfolio. The next page, and I think this is something of which we have been working since last year, but we are now going to accelerate, that it is on sourcing. Sourcing is the #1 cost driver in our company. And of course, this is about produce. So it is the buying of our vegetables and our food. And in the past, we didn't do a bad job, but we have not used our group performance with group strength and our new way of thinking about that. Because in the same way as we are building partnerships at customer side, we want much more integration with growers as well. And with doing that, we can do a few things. And we believe that we can have more innovative and integrated cooperations with growers. We can better secure availability of products because there's always seasonal effects, there are always crops effects, climate effects and so forth. There is some consolidation happening at sourcing side. But also for those consolidated companies, it is very important to find big companies like Greenyard to work this on a multiyear cooperation as we do, for example, in parts of our organization already. And so far, we have a competitive advantage in the sought-after products. So that's important for our clients. And not unimportant, we can have efficiency gains. And that is bringing value for all the parties. We can have optimization in our company together with clients and as growers, meaning that we have also important reduction of food waste. We can optimize our whole logistical chain. And of course, we can have better availability for a better price at the right moment. We believe this is in a high-potential improvement area, which will flow into our P&L in the next few years. And we also, just last week, appointed a new Group Sourcing Director, who will work with a small team but is working all the entities in the various countries to further build on this. And we are very confident that we will manage out -- a lot of potential out of this area. So just talking with you about customers, talking with you about growers. Of course, we have the remaining costs, and you see that on the next page, on Page 10, that is the operational excellence. It is about indirect spend and also our organization, as Hein just mentioned. So we will further look in further development in the indirect spend. We look -- especially also in logistics, transport, temporary labor and so forth. We will embed that -- these IT systems like ERP but also the group transport management system. And that will also bring us a lot of added value, not only in managing everything better but also in efficiency gains. And also, what we did last year, we hired more talent, and we are -- bundled people from outside with the experienced people from inside. And you see a better momentum. You see that people within the company are finding each other and not only with -- for example, in one division, but also, we have started all kinds of initiatives across divisions. And that's very interesting, and we are seeing also potential in that in the next few years. Then having said all of this, it's all about growth, but it is also about derisking Greenyard. The first one is if you bring more volume through integrated commercial partnerships, they are stable because this is the system which has proven itself in the past. Look, for example, in the proven partnership we already had. And what I said before, it is a stable profit, but also together with the change into the more added value services, it's not only stable, but it will also increase. Second part is that especially also derisking means that we are integrating more with the growers. To -- let's say, to work completely in the whole entire supply chain is of importance because then you connect your customer with the grower and with our added value services for both parties. And that will give us an added value to companies who are not so integrated. And that is a very strong next step in derisking our company. And last but not least, of course, our improved cash mindset and risk management. We have been reducing debt quite quickly actually. And also for the future, we believe that with the current phase in which we believe that we have stopped and could stop our restructuring mode. We are back in business fully, and we have adhered to all what we have promised internally and externally. You also see that outside world is reacting positively. You see that suppliers are going back to normal working capital. You see that credit insurers are more open again to insurers. And that will only help us further building up our position there. And that is a good step forward in which we strongly believe. On the next page, this is a bit more a summary of what you know and what you have seen but what we are further working on. It is the divestments of the noncores. It is the better asset utilization, some of the lesser used DCs we have sold. We have rented out the facility, and we are also working more closely together with certain divisions, for example, in Poland. Cash mindset, I just mentioned, and also the other things I just mentioned. But this is important because this is the whole corporate governance. The way we structure ourselves, the way we work in order to not only do it on the business side but everything around that helps us in making the next steps we have to do. And the next page is Page 13. And again, as mentioned here, we are having an absolutely strong corporate compliance and risk management in place. We have updated -- or we are actually in the finalization of updating a new strategic plan. And for that, we are very focused on realizing our plans forward. There's a lot of potential there, and I believe we are ready for the next step in the face of Greenyard. Then one other important element and, of course, everybody is interested in is about our refinancing. You all know that we are -- have our deadlines on the end of 2021. So it's still more than a year ahead. But we aim as management of Greenyard to try to come to a conclusion and agreement with our banks by the end of this fiscal year, so by the end of March. That is our aim at least. And we also have seen that the way we have shown our improvements and our financial results, that they will positively contribute to the refinancing process. The conversation so far, and you understand that we cannot go into detail during the negotiations, but they are absolutely constructive and positive, and the process is on track so far. And also one other important remark is that we believe that bank debt will remain the key component. And of course, you should never exclude any other option, but this is, from a majority point of view, our intention. So having talked a lot about customers, about derisking and about our refinancing, it's important to add another new pillar. And not that sustainability is new for Greenyard because at the end of the story, there are not so many companies who can say that their product is very sustainable. We sell healthy fruit and veg, but also, we have shown in the past that we are already working a lot on sustainability, but we are now going to accelerate it even more. We believe that stepping into a more firm and concrete program internally but also in alliances with external partners, whether these are clients, whether these are growers, whether these are other industry makers, whether they are governmental bodies or NGOs, it is important. Why? First of all, we have a purpose as Greenyard. And that sounds a bit fake, but it is about, why are we here and what is the added value for our company? And it is great because we have healthy products, and we can help, for example, in making people more healthy. Remember that during COVID, it is so important that people could buy on time with the right availability the healthy products. And we managed also this whole year, and it was -- I can tell you, it was a major effort for all our people, but we managed to fill our supermarkets, our retailers without any problem because we worked hard, and we could deliver that. And it was important to show and to demonstrate our added value in that respect. But also, we believe that going more in supporting our planet for climate, for water, for packaging and the social part of it, it will not only help the planet, but it will also help us. And I'll come back to you in a moment. So what we did is we made 4 concrete commitments. You see that on Page 16. The first one is to reduce our greenhouse gas emission by 50% in 5 years' time. The second is we have to further step into the water issue because that will be an issue on the longer term anyhow for our society. And we are increasing not only the water risk assessment, but we are also supporting where possible our growers in managing this potential risk. Thirdly, even if you don't like sometimes packaging, packaging is important because without packaging, your food waste could increase. So you have to find the right packaging, which is recyclable. We are already in a great level, but we will further work towards almost 100% recyclable packaging program. And fourth, of course, we want to have social compliance because we buy our products a lot from companies or countries, which are in different parts of the world. We believe that we have to give an example on this. And then you would say that, "Oh, fine, but what would that bring?" That would bring a lot because it is the way people look and regard to you. We have to give an example. But also, it can go hand in hand with creating economic value. I will give you some examples. If you are further working on integrating the supply chain even better, you can save a lot of cost. For example, now for a lot of small competitors, they cannot fill their trucks 100%. The more we work in partnerships, the better we can look at the demand of our clients and the better we can use our logistical system. And by doing that, we reduce automatically fuel, automatically CO2. That is one example. And so we have many examples in which we do not only reduce CO2, but by doing that, we less -- we need less kilometers, we need less trucks, and by doing, we save costs. So these kind of things go hand in hand. And that is something which is very interesting and motivating for people inside and outside our company: do something good and also make money out of that. Now and then on Page '18, you see that we are not doing that alone. We have participated in certain alliances, for example, water stewardship. And we are inviting everybody also outside of the market to work hand in hand and to come up to innovative, maybe start-up ideas and to see how we can further build on that. And I believe, and that will be my -- let's say, my last remark from my side, is that I believe that Greenyard is now well positioned for the next phase. We are there. We have our clients. We are absolutely also -- compared to our competitors, we are very well positioned. We have great clients who are working closely together with this. I cannot say that there are many other companies who do it in this way. We will further build this up with the growers' side, and we will further improve our own organization efficiency and the way we go forward. We will do that, very economic value-driven with a great heart of sustainability. And I believe that Greenyard is now going to step in the next phase. And I would like to hand over the word to Geert to hear -- to go a little bit back to the numbers. And thank you already for the participation.

Okay. Thanks a lot, Marc, and hello, everyone. We have 6 slides on financials to give a little bit more color with the figures that were already mentioned by Hein and Marc. First slide, we will elaborate a little bit more on 4 key figures. The first one is sales; the second one, EBITDA; third one on the leverage and net debt; and the fourth one on where we are at net result level. If we take the first one, the sales, there, of course, you had already some information during our Q1 trading update, and then you noticed that we had double-digit growth of 11.4%. Good thing is that's because at that time, apart from the integrated customer relationships and the ramp-up and the further development of them, we were also, but to a more limited extent, helped by COVID-19. And the question was, would that growth be visible still in Q2? And there, we can confirm because it's mainly partnership-related growth that of course, in Q2, we also had an important growth, which was in the end 9.1%. On EBITDA, we have EUR 9 million more. We have also an EBITDA margin gradually improving again from 2.4% to 2.6%. On the next slide, I will explain a bit more by segment how we achieve that EBITDA and how the margins in the 2 segments are evolving. The third key figure is, of course, our leverage ratio. And it's -- there, we take -- we're even beyond our expectation of a couple of months ago because we ended below 4. So we came from 4.4 at the end of last year, so that means in March 2020. It was, of course, driven by a much higher EBITDA because in LTM, we end above EUR 100 million, that's a bit more than EUR 103 million. But at the same time, also our net debt decreased from EUR 425 million to EUR 427 million. We have also a cash flow bridge later on in the presentation, but I just already want to stress the fact that for us in the period of September, which is high season because we replenish, at that moment, a full year stock in the Prepared and Frozen divisions, so automatically, our stocks are increasing. It's quite positive results to be able to bring down net debt in that period. So we'll come back to that later on. And very good also is that for the first time, again, after 1.5 years, we managed to have positive bottom line net results again of EUR 1.1 million. On one of the next slides, we give you a little bit more information on the items below EBITDA. So I will come back to that. If we then take Slide '21, there, you see the evolution by segment. Left one is Fresh. Right one is Long Fresh. And first of all, you will notice that in Fresh, we had the most important increase of sales, it was 11.1%, but also the most important rise of EBITDA. The EBITDA rose by 31.5%. Of course, it's -- one of the main drivers were -- was, of course, the revenue growth and the growth with our partners. Secondly, of course, there was some more at-home consumption. You know that in Fresh, we mainly serve retailers. We have almost no other exposure outside the retail business. So that was also helping our growth. But at the same time, and that's something we really want to stress, we also have a lot of additional COVID-19-related costs. These were, of course, costs related to safety of the people in our distribution center but also on having the products available in much more complex circumstances. So these are high costs, which we could not recharge in the value chain. Then if you take another important element, and then I refer back to the slide of Marc on the transformation program with the 3 pillars, it's quite obvious that the transformation initiatives and a lot of cost efficiencies we did helped us a lot in order to bring back the profitability of Fresh. In Long Fresh, the story is a little bit different. Also a nice sales growth of 6.5% -- sorry, 6.8%. At the same time, we have only a small increase, less than EUR 1 million in EBITDA. Main reason is because the COVID impact on this segment is more important. We also have foodservice customers. In Frozen, it's about 20% of our sales. And it's obvious that foodservice suffered from the COVID crisis. Of course, not all our foodservice customers because we're not only in catering. We, for example, are also delivering food to hospitals, to prisons, et cetera. The fact that we increased still with sales means, of course, that our retail fully compensated the foodservice decline that we noticed. But at the same time, we mention it on the slides, we, for example, have an important growth in fruits. It's one of our focus areas we have in Frozen. And we have also further growth with partnerships in that area. At the same time, there's also, of course, transformation initiatives in Long Fresh, helping the EBITDA. And there was one last element we have to mention. Over summer, the agricultural yields were lower than expected. That means that we had a slight underabsorption in our production. Luckily, from September onwards, the yields were improving again. So we have quite some recovery of the backlog we had over summer. Then if you take the next slide, and I will tackle that one briefly, but it's an interesting one to reach, and it's, of course, exactly the tables as mentioned in the half year report. If you take in the middle of the page, the EBIT, you see that not only the net result but also our EBIT moved from a negative figure to a figure of EUR 27.1 million. Of course, the main driver is the EBITDA, as I explained before, because our depreciations are in line with last year. If you then go down between EBIT and net results, then it's important to notice that our net financial cost decreased. There are several reasons. Of course, we repaid the retail bonds in summer 2019. We also lose -- use less credit lines with our banks. And also, the interest improved due to the lower leverage ratio we have. Income taxes remained low because we still have a lot of losses carried forward. And at the bottom of the page, you find the adjustments we have made on EBITDA. And apart from the IFRS 16 adjustment, the adjustments are very limited as compared to the bars. As you remember, over the last 18 months, we had to take impairments on assets. We had some minus value on disposals. We have, of course, also some reorganization costs. If you look this half year, net, it was almost 0. So we have a positive impact on mainly the sale of Portugal with a positive amount. It's the amount mentioned, the minus EUR 3 million. And on reorganization costs, which are mainly transformation-related, that was about EUR 3.1 million. So we had net almost no nonrecurring adjustments apart from the IFRS 16. Then if you go to the cash flow bridge, there, you see the bridge, how we go from the March net debt -- so the March 2020 net debt of EUR 425 million to EUR 407 million in September. First item is, of course, the operational EBITDA, which was much stronger than over the previous periods, the EUR 56.6 million. The EUR 3.3 million are some noncash adjustments we make. Taxes, I already explained. The cash tax out was rather low. It was only EUR 1.9 million. And then important to explain is the working capital. You see that we have a very limited negative amount of only minus EUR 1.9 million. And there are 2 buckets in it. First of all, we have the inventory increase and the replenishment in Long Fresh of EUR 70.9 million, which is normal in this period, which is, of course, knowing that we're in COVID times where there was a lot of consumption, a lot of sales, and we were able to replenish our stocks for the coming 12 months. It means that we also have a very positive amount to compensate, and that you see in the accounts payable and receivable, there, we have EUR 69 million improvement of working capital. Main reason is, first of all, our growth. Our growth helps us with the working capital, but mainly also a very intense focus program we have throughout the whole organization to think in cash, to improve working capital and to take all inefficiencies out. And that program is clearly rendering a better result. On CapEx, we have an amount of EUR 21.6 million. It's rather low because our intention is to go above the EUR 60 million this year. There were some delays in CapEx because of COVID. Luckily, it didn't hamper in any way our business. We could do some important improvements and replacements. It was also important -- we built an expansion warehouse in Ridderkerk for Albert Heijn. Also that's one, it's live and it's delivered in time. But some of the invoices are later than expected, and that will fall in the second half of the year. The EUR 5.7 million on disposals, it's mainly related to smaller assets but mainly also the Logistics of Portugal that we sold. And then the last one is interest, EUR 15.4 million. This amount is lower than you find in the P&L, but it's because in the P&L, we also have IFRS 16 amounts. So this is a graph before IFRS 16, and I explained already why the interest is lower than last year. Then if you take the one -- that last slide, you see the evolution of net debt and leverage ratio. And I think if you look at that graph, coming from 2.8 in the year '17/'18 and now half year 2021 to be back at 3.9, after having 2 periods above 7, I think we can conclude that as Greenyard, we are back, and we significantly restored our financial health. And also, you see that our net debt is further decreasing. It's also shown on this graph, half year '19/'20. It was a bit higher, the EUR 503 million, but it's because of the seasonal impact that we could fully counter now half year 2021. Then the last slide is on guidance on the future. Based on everything we know and the results we have, we can reconfirm our guidance of EUR 106 million to EUR 110 million for the end of this financial year. And we decided also to give a bit more specific guidance on leverage ratio, which is in line with the earlier guidance we gave but more specific. To be very concrete, at the end of this year, we expect to be close to 3.7. That's, of course, the prior -- pre-IFRS 16 amount. By the way, all our covenants with the banks are all pre-IFRS 16. So that's why we mainly stick to that leverage ratio. The year after, we go -- we will be close to 3. We then -- just after, we will go down below 3, and the purpose, of course, is to keep it permanently afterwards below 3, as we communicated already several times over the last 1.5 years. So that's the overview of finance. And I'll check with Hein and Marc whether they want to add something. Otherwise, we will -- we can go to the questions.

No for me. Thank you.