Greenyard NV (GREEN) Earnings Call Transcript & Summary

Hi, everyone, and welcome to Greenyard's Half Year Financial Results Call. My name is Dennis Duinslaeger. And joining me in today's conversation is Mr. Marc Zwaaneveld, our Co-CEO; and Mr. Geert Peeters, our CFO. I hope you had a chance to read the press release, and this is our website. And I'd like to remind you that the information we will give you and any answers to your questions may contain forward-looking statements. We do not undertake to update it. It may change in the future and Greenyard also does not undertake to update the information or disclaim any liability for third-party use or opinions in relation to what is disclosed in the presentation and in the answers. With that, I'll like to hand over to Marc to highlight some of the points in our press release.

Thank you, Dennis. Good afternoon, everybody. Happy to have you here on board about our half year results of the last 6 months. And it was a good first half year. We are on track. We have delivered a further 2% on top of double-digit sales growth of last year. And the good -- because last year, of course, was a very disruptive year because of COVID, and we saw further sales growth going forward despite the fact that our Long Fresh division because of COVID, stays a little bit behind. But that, of course, will further grow towards the future. But not only sales, also our EBITDA grow by another 8%. And also remember that last year, we delivered almost 20%. So meaning that we are really continuing our growth strategy also from a result point of view. And the EBITDA also delivered. In fact, related to that is margin of almost 4%, which is an uptick compared to the last period. So we are financially seen we are heading towards the right direction. Important with this is that we are at Greenyard in the heart of what is important in society. That is sustainability, that is healthy food, and you'll see more and more the acceptance of the market that -- vegetables and fruit. And you now it is the heart of the plant-based food industry. And we are, of course, already for many, many, many years in this. And we also believe that it will help us towards the future. Talking about the last half year, we, of course, were also confronted there's a few things which were challenging. And I'm talking about more strict labor situations. I talked about specifically in the U.K., in which you saw, and you know that there was some issues that a lot of people from outside of the EU were living in the U.K., and there were a lack of drivers and it's not only in our industry but also in other industry, this loss of importance. And we see help of all kinds of support being managed relatively well through that. But of course, it has a bit negative impact, and it was compensated by other actions we had within the group. Second to that, also very important, and you know as well as we do, that we are confronted with quite a disruptive inflation level worldwide. And of course, that also hits our industry and us. And the fact that we kept the way we work in our results -- well thanks also to the very early stage in both -- in the moment we are going to mitigate these issues of inflation. We, of course, had to try to reduce the cost inflation as much as possible. We need to look at our own productivity. But second to that is, with these kinds of inflation levels, you can't do it just out of cost. You really have to go to your customers. And you really have to explain to them what's happening in the market. And they know it is not just Greenyard, it's the whole industry, it is outside the industry. So our customers are not surprised that we came to them. And we explained to them very detailed, very customer-oriented and also very customer-specific, how we want to deal with that and that we have to pass on these inflation percentages to our customers. And we are in the midst of this process, and we do everything what we can. And which, until now, is doing well. It is not an easy competition, as you can imagine, but we have the facts and the figures at hand, and we are opening up all the contracts to get this fixed. And so far, so good, I would say. And by doing that, it is not just covering the labor issue in the U.K. It is not just covering the inflation. But meaning that underlying, we even accelerated under our underlying business and which is a good sign. And therefore, we decided that we are going to reconfirm our guidance for this fiscal year of the EUR 165 million EBITDA post IFRS and the EUR 190 million in few years' time. So I think it's a solid message, and we are confident that we will be able to further grow, as you know, with the specific and unique position we have with certain of our integrated customer relationships. And last point for me is that we also worked this summer on Strategy 2030 as we call it. It is the next level of the Greenyard development. And we are going to announce more on that around the Capital Market Days, which are planned for 7, 8 and 9 December in a very new way, interactive online way so that everybody can participate. And can find time to get known about our, I think, ambitious strategy we are going to present. So I would now like to hand over to Geert, who is going to explain a little bit more about the financials.

Thanks, Marc. Let's dig a bit deeper into the financials on this slide, and I hope everyone can see it. You see 4 boxes and more 4 main key figures we are going to discuss. Of course, sales, EBITDA, our leverage and debt level and then our net results. First of all, in sales, we grew another EUR 38 million over the first half of year. That represents a percentage of 1.8%. And this is on top of, as Marc said, the double-digit growth of last year because the growth last year was above 10%. Last year, we had a ramp-up of some important integrated customer relations. And on top of that, also on top of some extra volumes in the COVID year, we still managed to do a further step forward with that sales growth. Please note, we are now reporting like-for-like sales because, as you know, in July, we sold 2 businesses, the Bardsley business in U.K. and the Prepared Netherlands business, that's the mushroom business in the Netherlands, 2 noncore businesses. And in order to have comparable sales, we made an adjustment for that. On EBITDA, we grew also with another 7.5%. And in margin, we are going direction to 4%. So we were last year at 3.5%. Now we achieved 3.8%. On the next slide, we will explain this by segment because both segments improved from the point of view of EBITDA. On debt levels, we're continuing the deleverage parts that we set a couple of months ago. Last year, we were still at a leverage ratio of 3.9 and we are now at 2.8. Just to refer to the end of the year. At the end of the year, we were at 2.9. So we slightly decreased it. And important to know is we are now in high season in the Long Fresh business. It means we are building stocks. We have build stocks for about EUR 70 million. And even when we are building stocks and increasing working capital, we managed to improve the leverage ratio with 0.1, which is of course very much in line with further going to our guidelines and our guidance on this is to go to 2, 2.5. The fourth key figure is the net results. As you know, last year, we were about breakeven as well half year as full year. And now you see, as we explained before, the jump to more normal levels. We are now at 8.5% for half the year. And I can tell you for the second half of the year, we expect that we add at least a similar figure because also our interest is further decreasing based on the convertible bonds that will be -- that has been refinanced in March '21, and that will go out in December at the end of the year. If we then take segment by segment. Important to note is that as well the sales growth as the EBITDA growth, as the EBITDA margin growth, we find it in both segments. Of course, the drivers are different. And I will discuss them one by one. So in fresh, we have an increase of the like-for-like sales of 1.4%. EBITDA rose with 8.6%, and we achieved sales for us the important hurdle to go to 3% in EBITDA margin. Of course, the main driver is the integrated customer relations. We continue growing with our main customers, adding value, creating win-win situations. And we even achieved now 74% of sales in those integrated customer relations as compared to 71% last year. So that percentage is increasing and increasing. And I repeat that this is a growing business with also more robust margins than the classical more trading business. At the same time, we continue with doing profit improvements. We're very good at it, improving our efficiencies. We have programs in all different domains, in sourcing and purchasing and transport, in overhead costs. And there, we also added another important bucket of cost savings, leading us to that 3% EBITDA margin. If we then take Long Fresh. In Long Fresh, the sales was even higher. We increased 4%. Adjusted EBITDA was a bit more modest but still 3.5% of increase in EBITDA with also a margin improvement from 7.1% to 7.4%. First of all, the main driver here was the foodservice restarting. Important is, of course, during COVID and the lockdowns, foodservice became a very small share of our total portfolio, but it's revised. We didn't have to take any bad debt on this and we see that we revised from 13% to 17% in Long Fresh. And we believe there's still growth, but because it's quite obvious that after summer, a lot is restarted, but it's not yet at full speed. We will, of course, now wait with the fourth wave of COVID. It will be very smooth now. But afterwards, we believe there's still a lot of growth there. For the rest, we continue growing and fruit in convenience. We're also investing a lot in convenience, bringing a lot of untapped potential in that segment. Of course, Marc mentioned also that it was not easy in Long Fresh mainly because we have a very important share in U.K. with a lot of supply chain disruptions also inflation popping up. So that means that we achieved those nice figures even in those circumstances. Crop availability was good. It was better than last year. So sales was up, but also production was up but it was also not ideal. In vegetables, it was quite good. In fruits, the periods or the season was more difficult. It was quite difficult to find sufficient volumes of soft fruit. So there, we also -- it gave a little bit of pressure, but still the outcome was quite good. On CapEx, you will find it, and you can read it afterwards at the bottom of the slide. We continued investing a lot. One of the master pieces is the go live of the citrus sorting line in the new location in the Ridderkerk in the Netherlands. It's a sourcing line we will be using for the Albert Heijn and the [indiscernible] business, which is really a very nice state-of-the-art piece of automation with very advanced sorting real-time feedback to grow a big step forward. In Long Fresh, we have a lot of other investments. In sorting lines, we're working on new freezing tunnel. So it's improvements we're doing. It's expansion of capacity, and we have a nice sustainable investment in 100% heat recovery in France. Next slide, I will talk through a little bit briefer. First of all, if you take the full P&L, and it's important to see that the EBITDA improvement, you find it also in EBIT. You will see that the financial cost decreased from EUR 23 million to EUR 17 million. So we continually decreased the interest because the debt levels are lower, and we also have interest margins that improved together with the leverage ratio. And on nonrecurring adjusted items, if you add them up, you will see that they are very limited, there are pluses and minuses. But on average, the adjustments we make are extremely limited over the last half year. If we then look at cash flow, as you could have seen on the first slide, our cash level, our net debt level slightly decreased in a period with higher working capital. If you take the different blocks in the graph, the first green one is, of course, the EBITDA we generate. It's operational cash generation. We had about EUR 4 million of taxes paid. Of course, taxes will increase towards the future in line with our profitability. And also at the same time, we have our tax losses carried forward that are consumed. The red block to EUR 41 million is the increase in working capital. It's because we're in high season, as I explained with inventories. But at the same time, we improved again, accounts payable and accounts receivable balances. So that's also a continuous program that we will take forward in the future. And very important to note here is also factoring. In factoring, as compared to last year, we almost decreased with EUR 50 million because we also are driving down the factoring. We believe it's a very good program still in combination with the working capital. But at the same time, we're talking with our customers and definitely with the integrated customer relations to improve the DSOs and the payment terms. CapEx, it was EUR 23.9 million, a bit below half of the EUR 60 million program, but it's a small backlog we have that will be recovered in the coming months. Disposals, it's the 2 disposals, the mushroom business and the Bardsley business. There, we generated EUR 20 million of cash proceeds. We have the share buyback program, EUR 1.1 million. It's about 22% that we have executed in the meantime. Purpose is to buy 600,000 shares. And then yes, you have the portion of lease liability in IFRS 16. We have also the interest, it was EUR 14.8 million coming from an interest paid of more than EUR 20% million. So you see also the interest in interest paid is decreasing. Then on the guidance, the last 2 slides, guidance on EBITDA and guidance on leverage. The EBITDA. In fact, Marc already explained, and let me reconfirm the EUR 165 million guidance at the end of this year and EUR 190 million in 3.5 years. Please note that this was made before the disposals of the Prepared Netherlands business and the Bardsley business. So it means we manage these out. And at the same time, it also means that we take the challenge of the inflation, and it's also absorbed in our guidance. It's based again on a program of EUR 60 million to EUR 65 million of CapEx with which we are currently in line, and that's, of course, per year. And then the leverage ratio, which is the last slide, and then we can go to questions. There, you see that we went from the 2.9 at the end of the year to 2.8 in high season. And we even slightly improved our guidance towards the end of the year because we said we are going towards the 2.5, which is within our ultimate guidance range of 2 to 2.5 where we want to go in the near future. And we believe we will achieve the 2.5 by the end of the year. The guidance before that was that we would go towards the 2.5. So we believe it will be around 2.5 now. So that's an overview of the financials. I give word to Dennis again to start of the questions.

Thank you, Geert and Marc. [Operator Instructions] I think that's the first question, which I will read. You build down factoring, which I think is positive. You've always said that it is a cheap way of financing. Still, there is an interest of 1.5% to 2% financing in the past 2 years. Leverage is improving. Interest costs are coming down. Is it maybe an idea to stop with factoring and includes working capital requirements in normal debt financing?

Yes. I can easily answer this. As I said, we are driving down the factoring because we believe that the first we have to try is, of course, to get good DSO levels with our customers. So we are working on that, and we had nice achievements, as I said. We achieved about EUR 50 million, which is quite sustainable. So you will also see this at the end of the year. At the same time, we believe that factoring is a very good and normal instrument in our industry to finance parts of the working capital. And because also from a sustainability point of view, it will be crucial to have a very smooth DSO, DPO story within our value chain. And factoring, it's a good instrument, which is also a way of financing, which is low risk for the debt providers and with a good interest. So we want to keep it but at a lower level.

Thank you, Geert. We have 1 more minute for any other questions. It's not. I think that the explanation was clear, and I'd like to thank the gentleman for the information provided in the presentation, as mentioned, you can find the presentation and the webcast tomorrow on the website as well for your reference. And we would like to thank you for your attention and talk soon. Thank you.

Bye-bye. Thanks.