Greenyard NV (GREEN) Earnings Call Transcript & Summary

Hi, everyone, and thank you for joining the webcast on Greenyard's annual reports 2021 -- sorry, not '21, '22, of course. And it has been quite a remarkable year. As you will see and as you know from the previous webcasts, today's presentation may contain forward-looking statements. These reflect the current views of management and, of course, actual results may differ from these results, achievements or performances as expressed herein. Greenyard also does not undertake to update any of this information and we disclaim any liability for statements or opinions expressed by third parties and we do not undertake to correct those as well. Today, in our presentation, we are joined by Mr. Marc Zwaaneveld and Geert Peeters, respectively Co-CEO and CFO. And we will be highlighting the key strategic and operational points of last year and also give you a more detailed financial review. In that respect, I would like to hand over to Marc. And of course, afterwards, we're open for follow-on questions. Marc, the floor is yours.

Thank you, Dennis. A very good afternoon to all of you. Thank you for participating in this call and we are happy to share our information with you. If we go to the first page, well, as you all know, it was a really remarkable year once again. We witnessed new COVID-19 waves, inflation [ never ] seen in decades and the rise of a Russian-Ukrainian conflict close by, disruption in the supply chain and all kind of other impacts on our business we experienced. Nevertheless, we are pleased to say that Greenyard stayed on course. We communicated and continued the implementation of our Strategy 2030 to become a plant-based powerhouse. And last but not least, we delivered on our promises made at the start of our financial year even before the turn of macroeconomic events. At the time we made our budgets, we made our targets, we didn't anticipate on the seriousness of all those impacts in our society and in our industry and on Greenyard. So we are happy that we delivered according to those initial targets. And by doing this, we once again proved to be a reliable business partner for our stakeholders. We invested further in our long-term relationships, which are very important to realize our results and in our continuous product portfolio. We laid a stable foundation for our profitability, as you can see in our numbers, an increase of more than 6% in adjusted EBITDA and 20 basis points in adjusted EBITDA margin. And results which has risen from EUR 1 million to approximately EUR 70 million. And as important, we also published our ambitious sustainability road map and can tell you that we are on track with our KPIs. What I already mentioned to you is there has been quite some disruptions in the markets. Nevertheless, we demonstrated our resilience and stagility, so stability and agility, that we have applied. And that is, I think, very important where Greenyard stands today. We are a stable, healthy finance company, which is agile to react in the market. However, of course, we were also faced with supply chain disruptions. For example, in the U.K., too less number of trucks at the moment and not enough truck drivers when everybody went outside because of Brexit. But anyhow, we mitigated this by evaluating the product offering and looking for alternatives on finding transport alternatives together with the customer. Sometimes, this is absolutely also possible, thanks to our network relationships and scale. Inflation, a very important element, was managed through price increases in both Fresh and Long Fresh segments. In our largest segment in Fresh, we already have our transparent and collaborative long-term relationship, more than 34% of our Fresh sales. Getting [ Greenyard certainty ] of volumes as exclusive supplier in these long-term contracts. And that's very key to understand, those long-term integrated customer relationships make the whole discussion with our customers different. You not only talk about inflation, you not only talk about price increases, but you talk about added value service, how can you together also look at total cost of ownership, what can you change the way you work and that makes it better for our integrated customers and for us as well. In Long Fresh, we were also able to renegotiate our contracts to ensure that [indiscernible] remain sustainable in the value chain. And also here, we were very open and transparent. We have shown what is really necessary to the market and, of course, looked also to cost optimizations in the benefits for us and our customers and, at the end, of the end consumers. And of course, also our customers are concerned about increasing prices. Therefore, together with them, it is important that we look for further optimization and efficiencies. And that is -- and as I said before, that is key of the success of our integrated customer relationships we have and that gives us a competitive advantage in the market so far. Do also not forget that we sell private-label basic product in food that in times of inflation perform better than similar-branded products, especially in our Long Fresh segment. And lastly, we immediately took action at the moment of the conflict, but are not exposed in these markets. We continue to monitor how it could affect the [ agri ] business in Europe and impact on the raw material prices. Stepping into our renewed Strategy 2030. The good news is that even in a crisis situation, food is of essence. And of course, there is more to that. It's not just food, it is healthy food. And you all know that we are in a sector which is expected to grow. Healthy food is not a nice to have, it is essential to keep also cost in the health situation in Europe. So we believe that governments will promote more and more and you see supermarkets are promoting more and more healthy food. And also, it is, by doing that, also good for our climate ambitions. And this is at the heart of our business. We already have this portfolio. We are, by today, already a plant-based company. And therefore, we see that the pillars are clear. ICR, it helps us mitigating at least a big part of the disruptions we have, selling more in convenience, going firm in sustainability, hand-in-hand economy with ecology and in a growing environment. And I think that's very important for us to further navigate on this and to further build on this in the future by boosting also revenue and profit going forward. And saying that, underpinning our stability is certainly our unique model of ICR. As we work on a transparent basis to increase market share and continuously find economies of scale and improvements, it helps us having a solid foundation. This year, we have again been able to increase slightly our percentage of sales in the ICR versus non-ICR fresh. And on top of that, one of the other strategic pillars about convenience product sales that rose from about 32.5% to more than 34%, and that is good for our margin. Lastly, we continue our efforts to find new profit improvements each year. This year is no exception. We will continue to do so to make convenience stronger and more efficient each year as we have been proven in the last few years. And of course, it is also important to further invest in what we are strong in, invest in ICR, in efficiency, in convenience but also in digitalization, robotization. Especially if you have labor shortages, we need to further invest in that. Sustainability. So we are working on the rollout of an ERP. We have a real new state-of-art citrus sorting line with immediate feedback loop to the growers. It's very important to have quality on the highest level. Crucial sourcing data, we can [indiscernible] with the growers in quality and pricing. New boiling kettles and a freezing tunnel, which is much more energy efficiency and sustainability. And that is, in a nutshell, that's why I give it now to more detail of the financials to Geert. Please, Geert.

Thanks, Marc. Next 5 minutes, I will dig into the key figures of Greenyard. And I can tell you, we passed through a very solid year. It even makes us quite happy as a management and confident towards the future. And if you look at this slide, you see here the key figures, the like-for-like sales on one hand, the EBITDA, our leverage ratio and our net results. And I can tell you, all of these further evolved very positively and also in line with the guidance we gave you before, not only at the group level, but we will see on the next slide, also in both segments. First of all, if you take the like-for-like sales, we increased 1.4% as compared to last year. And I'm pleased remember that last year, we had a big leap forward by 8.7% where we stepped into new integrated customer relationships and we further grew this in this last year, '21/'22. Then on EBITDA, what you see in the next second graph, there you see that we almost increased with EUR 10 million, which is an increase of 6.1%. And also the margin is gradually improving. It was 3.6% last year, we're now at 3.8%. And you know our ambition is, in the coming years, to go above 4%. So we are well on the way to achieve that. Very important, as Marc already explained, it was a year with a lot of macroeconomic headwinds, a lot of uncertainties. And I hope you appreciate that we managed to deal with this in a very good way by continuously looking into efficiency improvements and also to be very collaborative, working together with our customers in order to improve the model and to find win-win altogether. The third graph shows the evolution of net debt. We go from about EUR 340 million at the beginning of the year to EUR 304 million at the end of the year, so it's EUR 36 million better. And it also means that our leverage ratio, which measures our debt level, decreases below the 2.5, which is even better than what we said before. We come back to that later on. And then net results, you know that last year we started to be positive with EUR 1.2 million. Now we have a sizable net result again with EUR 16.9 million, which is a good base for the future. If we take then both segments. At the left side, you see Fresh, the right side, you see Long Fresh. You will see that we grow in both segments as well in sales as well in EBITDA and in EBITDA margin. So a very positive story in both parts of the business. The drivers are a little bit different. Fresh is, of course, very much driven by the long-term relationships we have, which Marc also explained before, and where we continue to grow even in the times that were more difficult. We also focus more and more and be more selective on the programs we're doing. So we pick the more profitable programs, always with a lot of sustainability in mind, and that also brings our margins up from 2.6% to 2.8%. If we then look to Long Fresh. There, the main driver is that we engage more and more in convenience and in fruits. You could see the KPIs on one of the previous slides. These are continually growing. And also over the last year, after the COVID period, gradually, the food service was coming back and we had a shift back from retail to food service. Also in Long Fresh, it was difficult. Of course, they have the same uncertainties in the economy. But also, especially U.K., we had quite some supply chain disruptions during summer, which were also triggered by Brexit. Luckily this is, in the meantime, long gone. But also, here, we managed quite well to manage this situation and keep up the profitability. So we ended at 8.3% in EBITDA margin, which was 7.6% last year. If we then take the net results, then it's important to remember we go from EUR 1.2 million to EUR 16.9 million. Of course, EBITDA is an important driver, but also our interest expenses, they decreased with about EUR 13 million. Of course, that originates from the refinancing we did in March '21 and we gradually pushed down our debt. We have also better interest conditions. And that's all helping us in the net result. Also in the nonrecurring items, the adjustment items, which we all explained in detail in the annual report, year-on-year, we have smaller numbers of nonrecurring items, so that's also well in control. Then the cash flow. So how do we go from that EUR 340 million to EUR 304 million? So the improvement of EUR 36 million. Of course, the first driver, it's the first green bar in the graph is, of course, our EBITDA, our operational cash generation. Next, we have taxes we pay. The taxes increased significantly, but it's a good sign because it means that we are making profits in a lot of countries, which was not the case in the past, with also some carryforward losses that were depleted. And with the COVID period, we -- there was -- there were prepayments not done, but we all catched up with it. So that means that we have now a good base also for our tax payments in the future. On working capital, we have a slight negative amount of EUR 12 million. Actually, what's behind, that's on one hand, the increase of inventory by EUR 55 million. Now inventory increase in our business is a good sign because it's all good inventory, of course, that we will sell in the course of the coming 12 months. And it means also that we had a good production. And at the same time, the working capital only increased by EUR 12 million. So that means that the difference is a positive amount. And that means that accounts receivable and accounts payable have improved. It's mainly accounts receivable where we manage with customers to have better payment terms. Also, this is very sustainability-driven because in our value chain, we believe it's good that everyone is paying each other right in time. And it also means that the better payments we get from the consumers, we pass that through to our growers. So we have an accounts receivable that's better. At the same time, we pay quicker -- with quicker payment terms to our growers. On factoring, which we'll also find in our reports, we continue working with factoring, which is very good that we do this because it's a nice way to finance the working capital. But at the same time, we are decreasing that. So we had EUR 50 million more or less, less factoring as compared to last year. CapEx, we have EUR 48 million. We aim more to have about EUR 60 million. I can tell you that we approved higher amounts than the EUR 48 million. Only in the current economy, you see there are some delays on supplying all the material that we order, but nothing to worry about. I can tell you all the investments we needed to do are done or are in the pipeline in the short term. But our disposal proceeds of EUR 20 million, we had some at the disposals of Prepared Netherlands and Bardsley that we did over summer. We did some share buyback for the stock option plans of EUR 5 million. And then, of course, we have the lease components and the interest, and I explained already before, and that interest decreased significantly. And then to finish the last graph on which we are especially proud also is the deleveraging we're continually doing. So if we just go back from the year '19/'20, we were above 4. We had a leverage ratio of 4.4. Leverage is your debt divided by your EBITDA and we are now below the 2.5. Our guidance was to be close to 2.5. So we're doing better than what we told before. And 2.4, we consider as the really robust range, we want to end up. And that's what we already told 3 years ago, between the 2 and 2.5 because that's a very robust level for a company like us, also in line with the sector. And that gives us also the financial strength to make our strategy come through in the coming years. It also means, of course, now that we're in that range, it opens up other options so that we'll also say that in the future we will reconsider dividends. It will not be on the last year. It will be based on new year. That means the year '22/'23, there we will reconsider it. And we will gradually, always in a conservative way, but we will gradually look into M&A again towards the future in order to support our strategy. Then I hand over back to Marc.

Yes. Thanks, Geert. First few messages about sustainability. Sometimes I get the question how can you continue working on sustainability in these uncertain times? And I can tell you, it gives a window of opportunity for us. Sustainability, if you look at energy prices, new products for wind energy, for solar energy are even more attractive. But also, if you want to help your clients then to also offset part of the price increases, you can further think about the massification of volumes, trying to reduce empty truck kilometers to have a better alignment, to avoid waste. And all of this directly benefits the P&L of our customers and directly benefits us. And that's the good news because also it benefits automatically sustainability. And I think this is clearly a win-win. So also in uncertain times, we fully continue on our sustainability targets. And I can tell you also that last week, SBTi has externally validated our CO2 reduction targets and we achieved what we had promised. And I think this is also one of the goals we, as the management of this company, also endeavor for. Looking at this year's priorities. Well, let's be very clear. We have to handle and proactively mitigate and manage all the disruptions we are facing from society, from geopolitical issues, from economic situations. And the best thing what we can do is to further work with our clients on ICR. If you compare it with companies who are much more on product trading, what they can do is product trade and they can discuss with clients about product trading. We are much more, especially in the ICR, focusing on the total cost of ownership, in finding new solutions within the added value services to find a way out of this and at least to reduce and minimize the negative effects. And that is not an easy time, let's be also honest. But also last year was not an easy time. And nevertheless, we managed to cope with our targets. For this year, of course, it is very uncertain what will happen in our environment. We do our best. We have seen that everything what we have planned is underlying also performing in the right direction. So we are comfortable that we are on the right track. And especially, we see also a window of opportunity because also certain clients of us, they are also looking for different ways. They have also issues themselves and they are also starting to be much more even further interested in our ICR model, which has been proven to be the right model. And I see some positiveness coming up there in the future. And then my last slide is about historical ambition for the future. We are back on a good EPS. We are back on debt level which we are saying this is market confirmed. And so what we now need to do is further leveraging out. So of course, there is a certain matter of uncertainty and we will not ignore that, but we also want especially to grab that. We are keeping highly confident that what we are doing will further benefit to our longer-term ambitions. That's also why we reconfirm the EUR 200 million to EUR 210 million guidance for the '24/'25. And I can imagine that you will ask me a little bit later, why didn't you give us the guidance for the year? And I will be very open to you. It's not that we are positive, it's not that we are negative, it is just that we do not know what is happening outside in the market as nobody can say. What will happen in China with COVID disruptions in their demand? What will happen with the Russian-Ukrainian war? What will happen in economic crisis? What we can know is that we are on the right track. We are in the industry which is growing. At the end of the story -- maybe the volumes are a little bit down now. But at the end of the story, people might also switch certain products within our mix. We have a full assortment. So if people are going to buy a little bit less of the expensive fruit, they will shift to the cheaper fruit, we will never know. We see a trend that at the end there must be more fruit and veg to be sold in the next few years. And by doing that, we also link that. So being in the right industry, we link that with new models as we have proven with certain customers, as you are aware of. And that is what we are trying now to further discuss with certain current clients, but also new companies who are interested in our model. And we are confident that it will bring us in the right direction. And I think this is careful but also positive mind I want to conclude our introduction. And I want to hand over for any questions. So please, Dennis.

All right. Thank you very much. Thank you, Marc. Thank you, Geert, for the elaborate explanations. I think we can indeed switch to questions. So let me see if there are any questions already, but we will give it a minute so that you can complete that and take the -- take the time and the platform to ask any questions you may have to Marc and Geert.