Greenyard NV (GREEN) Earnings Call Transcript & Summary

Welcome, everyone, and thank you for joining our annual earnings conference call for the year 2021. Today, we are happy to announce strong results and of course, also happy to see that the market is supporting by showing a EUR 0.5 billion market cap, which is unfortunately not always currently reflected on all websites, but clearly the case after capital increase in March. Today, joining me in the presentation will be our co-CEO, Marc Zwaaneveld; and our CFO, Geert Peeters, who will be telling you story about last year, also giving you an overview of what is in store for the future by giving the basics, but also the fundamentals and of course, opening to questions for any additional details or questions that you may have. Please note that statements that we will be issuing and discussing today may include forward-looking statements. We do not undertake any obligation to update these or correct any false or incorrect statements from third parties. With that, I'm happy to hand over to our Co-CEO, Marc Zwaaneveld.

Yes. Good afternoon, everybody. Happy that you have some time to share with us our results. We will go through the presentation. And I can imagine that some of you have more or less knowledge about the company, so we try to find middle ground, but are happy to get your questions later on. If I start with Page 5 of our presentation, some key highlights. First of all, what we see is that as we are uniquely positioned in this interesting growing market, thanks to the health trend with the consumers, we see growing and stable margins. We see that also a lot -- almost 70% of our sales in Fresh is within long-term integrated customer contracts. We have a great international network of growers, which helps us to combine the consumers to the growers and to have year-round availability of our products. We are absolutely on track with our cost efficiencies with ongoing continuous improvement plans, fueling further gains. Strong financials, renewed funding gave a stable basis for our growth ambition towards the EUR 190 million adjusted EBITDA. Last but not least very important, the sustainability becoming an inherent part of Greenyard's processes, decisions and strategies for which we have already further invested in. That led to a sales of almost 9% from EUR 4 billion to EUR 4.4 billion and adjusted EBITDA post IFRS 16 of up to 18%, up to EUR 157 million, and our leverage going down in 2 years' time from more than 7x to 2.9x. So we are glad that we have achieved so far as we are. To give you a little bit flavor, bringing you to the next page. What you see on the top left is that there is -- and also the top -- the bottom left that there is a real increase in our products last year. And you could say that's normal because of COVID and that is true. However, never forget that it is true for fresh food, but for frozen food and for prepared foods, remember that, for example, restaurants, but also schools and canteens of industrial companies, they were closed because of lockdown. Nevertheless, what we see is an increased consumer awareness, healthier lifestyles. And the interesting part is that we have not only seen this important volume increases last year, but we also have seen that in the 2 year -- months in the new fiscal year, we see that these volumes are sticky. So that means that the volumes are robust, and we even believe that we will further see a permanent growth in those categories. Also governments are more initiating to promote healthier food. For example, in the Netherlands, there was a suggestion to lower the VAT percentage, not being implemented, but it came during the process of a new government. Thirdly, also, our retailers are promoting more and more healthy food, for example, via Nutri-Scores. And that, of course, is to the benefit of the people and also for us to deliver that healthy food. That resulted in increased volumes per buyer. You can see that also in the graphs. And also, the customers have rediscovered long-shelf food. And of course, frozen and prepared products are really nice products parallel to the fresh foods because they are also very sexy new products, convenient products, which are to the benefit for our customers. So we are in a market which is growing, and we believe that it has not been finished yet. Going to the next slide. For the people who do not know us that much, we can combine for the end customers, for the consumers and for the retailers, we can bring them together with our growers base. So it's not just managing the product. It's much more than that. It is about the smart packaging, sustainable packaging. It is innovation in the products. It is quality management, but it is also thinking very cleverly to reduce CO2 pollution. And everything we do is to close the whole chain between the end consumer and the grower. And by that, by our scale, we are on track to do that. And of course, we will further work on it, that we bring more and more added value services to the benefit of everybody. And never forget the plant-based trend, which we see more and more and is more and more an item for end consumers, for governments, for retailers, that plant-based trend is, of course, to the benefit of our company. Going forward, the next slide, you see that we also have seen a positive element in our results of last year. That is -- as you might remember from earlier announcements, we have closed very interesting and very good relationships with some of the biggest retailers in Europe. And it is to the benefit of everybody. Everybody can benefit, even the end consumer, because at the end of the story, it is everything about predictability, working closely to the wishes of the end consumers, but also to be more stable, to be more robust, and that is very important, because never forget that during the hoarding of last year, we were able, with all the issues we had, to deliver our products to the supermarkets every day, even in those huge and very surprising days we had last year, March, April. And having that, we could do that because we were so closely working together with our customers, we knew what they needed. We knew how to do it, and we could have the flexibility and the agility to deliver as such. But also, what you see is that in Long Fresh, the convenience products and fruit products have grown. You see that this also increased as a percentage of the turnover of that segment. And we also believe that, especially for convenience, we see also a further increase in the next few years going forward. I already mentioned something about our extensive grower network. Can you imagine that you have for year-round availability, you source everywhere. You source in Latin America, you source in Africa, you source in Europe whatsoever. And it is interesting because you bring them from that area, which suits best. And sometimes people think, well, close to home is better, not always, because if you grow home, but you need a lot of artificial light and heat, sometimes the CO2 pollution is less if you bring them by containers by boat. So it is not that simple. But the most important one is that we work to secure the availability, that we work together with the grower, that we also take all their products from the market. And for doing that, we have also launched, as we announced earlier, a group-wide sourcing program. And that brings me to the next page. It is for the people who know us, we started 2 years ago with the transformation plan, and we delivered more than EUR 40 million upside on our profitability on that one. The transformation plan as such is being finished. We did what we had to do. And we changed that in continuous improvement plans. So if you see at those pillars; sourcing, can you imagine we buy for roughly around EUR 2 billion of produce. And we believe that working together more internally, working closer with our growers, with our customers, we can optimize that, and we see a lot of benefits not only from a financial point of view, but absolutely also from a product base and certainly also from a sustainability perspective. Furthermore, we will continue our operational excellence. Think about our way of working on optimizing our transport, better utilization of our transport modalities, means not only less kilometers, less CO2 pollution, it's very important. Sometimes we use trains. It is all that we want to combine economic value with sustainability. It is absolutely something we have put high on the agenda for the next few years, our purpose, what are we doing? Why are we doing that? Society is changing, and we want to be a leading company in our industry to deliver that. And it is not just money or just sustainability. We believe that we can bring it together as we already do, and especially those long-term agreements we have with certain major European retailers help us because we can together promote and deliver those projects going forward. Indirect spend, organization, you see the amount. We are never ready. We will continue doing that, and that will underpin next to our ambition from a top line perspective, the total improvement in our results in the next few years. And if I look at our investment program in our assets, I would like to remind you that also in the last 2 years, when we had difficult years, you know that we kept investing and our stakeholders very importantly and thanks to all those financial stakeholders, they let us do that. So we invested, for example, together with those integrated customers in new, very automated citrus lines. We also invested in sustainability by cooling tower upgrades for smart water re-usage, and also efficiencies with new dispensary machines for packing automation. It is never stopped, and we are going forward to make us ready for the future. And then I already mentioned it, sustainability. By definition, I believe that in our industry, Greenyard already always worked on sustainability. We didn't show it too much. But still, we can do better. So we identified 4 main topics. We want to give us challenges on climate action, water stewardship, 0 waste and responsible sourcing. And you will hear more about that in the future. In a few months from now, we will also launch our new sustainability annual report, and we will further announce the steps to go. And that is also we don't do that alone. We do that with partners. And first of all, we want to support a healthier lifestyle. Again, here, it comes that society and Greenyard's purpose comes together hand-in-hand. Looking at the next page, it is more as a reference point. You see that we already upgraded our ratings. We do not stop with that. We have higher ambition and we made great step forward. And I think that is to the benefit of investors as well as, of course, you all know how important green investments are. Then I come to the end. Before I hand over to our CFO, I want to highlight a few things. We are active in a growing market. It is underpinned by consumer health awareness trend. I think it's very important that you can work in a growing market. Our business model is designed to win market share together with its customers. I think we have proved in the last 2 years that we were successful in winning our big European retailers for longer term. And we are now leveraging that, and you saw that in our sales increase of the last year and the last 2 years, actually. But this integrated customer model, and I already mentioned that, it has been driving the stability and growth of our adjusted EBITDA margin. And I believe that it's important, it's not just driving the margin up, it's also making it more robust, making it more robust if some headwinds would arrive on a certain amount of time because the more you are included, the better it is. The collaboration with extensive grower network guarantees product access and availability. I just explained to you, it is also one of our top priorities for the next few years. It will bring us a lot. It will bring us the right products at the right time and the right quality with not much waste, waste as little as possible. I think that's important. It's also good for sustainability as well. We will absolutely continue with efficiency towards a further leaner and leaner organization, continuous improvement. We see further upside in that, and we will drive that out in the next few years. And of course, we will absolutely further invest in everything what we need to achieve that. And by doing that, we will demonstrate our purpose in society. We will become the industry leader in sustainability with a very sound and clear financial basis. And I hope that with this presentation, we can also now focus on the future. And the future is what we said, a healthy one, a healthy one from a product point of view, but also from a financial organizational point of view. Thank you for your attention so far. And I would like to hand over to Geert, our CFO, please.

Thanks a lot, Marc. Perhaps I will show you first our annual report. This is published on our website and you have at least 200 pages to read, so we thought it could be useful to make a little bit of summary of the key messages in the financials. And that we will do in a couple of slides that I will present to you now. First of all, the 4 main pictures of our key financials is, first of all, of course, our sales, our revenue. Marc already explained it. We grew almost 9%, exactly 8.7%. And in this picture, we showed quarter-by-quarter because, of course, you have the quarterly updates until Q3, you had the figures. You know that we now increase up to EUR 4.4 billion. And what's important to know, you have seen figures of 11%, 9%, 10% in the first 3 quarters. Fourth quarter was a little bit lower. It was 4.5%, but be careful, it's all related to the main driver of this revenue growth and the main driver are the long-term integrated customer relations. We had new relation starting up in Q4 of the year before. And that means, of course, that the ramp-up was mostly done by Q4. And still, we had an important growth of 4.5%. Of course, some of you will have the question on, yes, what's the impact of COVID? It's very difficult to quantify. That's also in our report, you will not find figures on nonrecurring COVID costs whatever. Of course, our revenue has been helped by COVID. It was stimulating the sales in retail, but we feel that part of it is also sticky and is really into the health trends and will be sustainable. Most growth, and that's I want to stress again, is related to the growth we had with our customer relations. Second picture is profitability. And you see we have the increase from -- with about a bit more than EUR 20 million. So indeed, again, a very big step forward in adjusted EBITDA from EUR 133 million to EUR 156.9 million. Important because some of you, they know the figures of the past, they know the guidance. And important to notice that because the figures seem certainly much higher than before. It's because we are presenting them now post IFRS 16. And the reason we do that is because of the new rules, that's the way the world is looking at financials of companies. So we made that transition. At the same time, in the annual report, you will, of course, find also the 3 IFRS 16 fares so that you have the reference to the past. And if we make the reference on the 2021 figure at EUR 157 million, that we ended [indiscernible] IFRS 16 at EUR 116.6 million. And that's exactly in between the EUR 116 million and EUR 117 million guidance we gave on the adjusted EBITDA. So we are right at the guidance we've given a couple of months ago. Important to see also in the box that our margins are increasing at 3.6%. And we will further on the presentation, give you some more guidance on the future, but we, of course, believe that the only way is up and that we can still improve that margin percentage. Third picture at the bottom left is the leverage ratio. In the leverage ratio, we showed is pre IFRS 16. The reason is that our banks and the way the covenants have been defined in our debt agreements are based on this key financial. And if you compare to the past, we were in March '20 at 4.4x. Marc even mentioned that we came from above 7x before and we declined below 3x at 2.9x, which is really above our own expectations of a couple of months ago because we were deleveraging faster than expected. And that also means that our net financial debt, that's without the leasing debt, it's about EUR 340 million. And I think we can only summarize that we have now, again, a healthy balance sheet -- balance sheet, which is fit for the future and for further growth. And then the fourth one. Of course, EBITDA is nice below the EBITDA of the interest and the taxes and of course, in most companies, nonrecurring items, which I'll refer to as adjusted items. And you know in the past, during our recovery, during our transformation, we had to swallow quite some losses. These are typically impairments you have to make on intangible assets. We had also quite some nonrecurring costs in relation to the restructuring to the different bank processes. But luckily, we can clearly show now that we turned the page, and we ended just below 0 at EUR 1.2 million. Of course, we are very happy that -- very pleased to say it's above 0, but there's still a way to go. It's not our own target figure. And I can tell you, our budgets show an important further increase in the coming year. One of the important drivers is, of course, the interest that you will notice further on. But because of the lower debt, the capital increase, we will have also much less interest expenses in the future. Second slide and the next slides, I will do a bit quicker, but it's interesting to see the segment information. At the left side, you have the Fresh segment. At the right side, you have the Long Fresh segment. And you see the only way is up because the sales went up, the EBITDA went up and the margins went up in both segments. You can see the figures on the slides. I will not just stress them again. Just the drivers of that growth in Fresh and Long Fresh, it's a bit similar, but there are also differences. In Fresh, it's quite clear, it's related to all those long-term partnerships. I think that customers like Albert Heijn, Delhaize, Carrefour, REWE, they're all included in that, and they show positive trends. At the same time, we have our transformation program, and Marc had showed on the previous slides that we have on a full year recurring basis as compared to 2 years ago, about EUR 40 million of efficiencies. Of course, they kicked completely in 2021. So they are also included in those figures. And I can tell you, we have a lot of further initiatives towards the future. So we turn the page that our transformation office program is now a profit improvement program towards the future. At the same time, we invested a lot. We have a committed CapEx of EUR 34 million in Fresh. And good example is the expansion we did in [ Ridderkerk ] with Albert Heijn. And we're investing there also in a really state-of-the-art citrus line. So they are very nice investments. And at the same time, we're also investing in a new ERP across the Fresh division. In Long Fresh, the drivers are, of course, also, first of all, the clients. We explained before that we have, for example, the partnership with Tesco in frozen fruit and vegetables. There, we have significant growth, but we see growth with all our main customers. Of course, here, we were also hit by COVID because the food service declined a lot. It was about 20% of our sales, but only 13% over last year, so much lower than historically. But we were able to compensate that with more retail. For the rest, we have also a lot of improvement initiatives as well in the factories, in the way we do the supply chain. And we invested also a lot, about EUR 29 million of committed CapEx, which, for example, in brand-new sorting line in Poland, in Lipno, where we have a very attractive payback towards the future. Perhaps 1 last remark on Fresh because I forgot to mention that we -- COVID stimulated the revenues, but it also triggered a lot of extra costs. So if you would take bottom line at an EBITDA level, we could say what we gained in extra volumes, thanks to COVID, we invested in extra costs and safety measures and taking care that our customers have good availability of all the produce. Next slide, I will do a little bit quicker. This one is a bit technical one. Just the key messages, and you can read it in detail afterwards because the presentation will be on the website. If you look at the bottom, the EBIT was slightly negative last year. And now we're back at more normal figures, even above EUR 50 million, EUR 51.5 million. And we make the bridge to the adjusted EBITDA post IFRS 16. Important to see is that as to adjustments, that means nonrecurring items, those items are more and more limited and there are not only pluses -- not only minuses but also pluses. Be careful in this graph, the minus means it's a positive impact, the plus means it's a negative impact. To give you 2 big amounts, the main nonrecurring costs were still in the area of reorganization. We did all effort now to make the organization fully ready for the future. So there, we still have some costs also to start up the further partnerships. But at the same time, the minus 2.9, for example, was a result on the sale we did of the Portuguese business, so results with profits, which is also quite positive. Then the next slide. It's our cash flow, and it's -- you have to read it from left to right. What was our net financial debt in March 2020 and what is it in March 2021. We split the net financial debt in 2 bars. You have the pre IFRS 16. So that's, for example, in March 2020, it was EUR 425 million. And on that basis, we calculated the leverage ratio. But on top, we have also the leasing debt in IFRS 16, and that's EUR 234 million. How did we manage to decrease that net debt to the right side of the slide? Of course, the first important element is EBITDA, as mentioned in the first block. Taxes were limited. And I can tell you we pay, of course, all necessary taxes, but we had a lot of losses from the past, and we could still use the losses, but it's quite obvious towards the future, more and more of those losses are consumed. So our tax cash-out will increase in the near future. Working capital, we're particularly proud. We have a positive impact of EUR 10 million. But at the same time, we rebuilt our stocks because I can tell you in March 2020, with a hoarding that happens when COVID [indiscernible] at the beginning of March, a lot of the stocks were depleted. We were able to build them up again. So it's a negative impact. But at the same time, we have a lot of efficiencies in accounts payable, accounts receivable. We have really installed a cash culture in the company with cash forecasting. And at the same time, but because we are not doing that, we always do that in a sustainable way. That means we pay our suppliers in a correct way because that's key in our values. CapEx EUR 48 million. In reality, it was already mentioned in the slides before, with Marc with some examples. We committed more than EUR 60 million, but invoice is coming in and some came in after year-end, so there's some overflow to this year. The disposals is what we earned on the sale of Portugal, but also some assets. For example, we sold an asset in [ Innsbruck ]. And in these figures, you know that yesterday, we published also that we sold the mushroom business for EUR 17 million, but of course, it's not yet in. That's in the new fiscal year. The capital increase is mentioned here as a second -- as a separate bar with a big positive impact. Then you have the lease payments of about EUR 30 million. And then we have the interest and finance costs, which were still significant. But there are several drivers which will quickly drive it down, and those drivers are, of course, the lower debt that will bring it down, then the convertible bonds that will expire in December and that convertible bond at a rate of 3.75%. And I can tell you the actual average rates are much lower. Because of this leverage ratio below 3, we have better -- much better interest conditions. So that interest cash out will be much better in the future. Slide 5 and this slide speaks for itself. This is a look back over the last 3 years on what happens with the debt and what happens with the leverage ratio. And it's quite clear the debts increased very fast in the first half of '18/'19, and we managed to bring it down each half year. Of course, with some seasonal impacts because after the first half of the year, we always build Long Fresh stock, so it's a slight upward trend always after the first half. And leverage ratio is continually declining to a very healthy rate below 3x at this moment. Towards the future, and that's my last slide, and then we can run into the questions. Perhaps the 2 slides, sorry. This is our financing structure. We -- how does it look like when you look at the outer circle, then you see the EUR 50 million, the capital increase and the rest 465 -- sorry, EUR 467.5 million is the debt at bank facilities that are partially guaranteed also by [indiscernible], which we are also very thankful to make our refinancing happen. And then you see the EUR 467.5 million, how it splits in working capital facility, then also a term loan. And the third component, the EUR 125 million, it's a line we are ready in order to repay at the end of December, the convertible bonds. So that is 100% secured that it will be repaid at that moment. Then the guidance perhaps -- or perhaps, Marc, you want to take this one?

I think this is in fact the same as I mentioned.

So these are -- it was a pillar of our further growth towards the future. So you can -- Marc referred to it before. And then if you take the last Slide 8, in financial, the guidance again, where we stressed in '24, '25, that's the left graph, that guidance remained the same as before. So that means EUR 190 million before we mentioned the amount of EUR 150 million. The EUR 40 million difference is the IFRS 16 impact. So the guidance still stands and is a very nice improvement as where we are today. And the guidance of '21, '22, we increased by EUR 5 million because it was at EUR 120 million pre IFRS 16, we put it to EUR 125 million. If you add the EUR 40 million, you come at EUR 165 million. And the EUR 5 million we put on top, it's also managing out the financial impact of the sale of [ Clare ]. [ Clare ] is our internal name of Prepared Netherlands and the disposal of Prepared Netherlands. So it includes a step-up in guidance, but at the same time, also managing out the disposal. The right side confirms what we said before, we're still heading into a leverage ratio, a sustainable level between 2 and 2.5. That remains the same. We are only a bit more specific on one, we think we will achieve that range, and we believe we can do almost by the end of the year. And so we -- our guidance is towards 2.5. We think we can almost achieve the 2.5 at the end of the year, of course, helped also by the disposal of the mushroom business in the Netherlands. So that's the summary of the financials and unless Marc wants to add something, we can then go to some questions.

Happy to get the questions. The good thing about a complete presentation is that there are no much -- not much questions anymore, unless technically something is wrong. Yes, we don't see any questions coming up from you. I saw a text message. So the technology seems to work for us. Of course, if there are no urgent questions now, you can always refer to all the material we upload on our website. And of course, you can contact Dennis Duinslaeger and/or Cedric Pauwels, our Communication Director. So feel free to do that also afterwards. If nothing comes up, then Dennis, I think we should close the [ final ] call.