Greenyard NV (GREEN) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to the first half year results call of Greenyard. Joining me in today's call are of course Mr. Marc Zwaaneveld, our co-CEO; and Mr. Geert Peeters, CFO of the group. They will be sharing their insights on the annual -- half year results, apologies. We note that these could include forward-looking statements and management views. Greenyard does not undertake to update these statements and disclaims any liability in this respect. And in addition, we also disclaim any liability for the use of our information or reproduction thereof by third parties or third parties views. And with that, I have the pleasure of opening the call. And Mr. Zwaaneveld, floor is yours.

Thank you, Dennis, and a very warm welcome to all of you joining this call for our half year results. As you all know, since last year, a lot has been changing. And we have had, of course, last year's results in a time period in which we had post-COVID and the first starting inflation. One year later, we have the massive disruptions in the supply chain, heavy macroeconomic and geopolitical in the world. And because of that, we saw the impact on our industry. And our industry was one of the first who gets its impact of those situations around us. For example, if you look in official fresh cell data, you spoke that the European market for fresh products went done on volumes for 10%. The good news was that Greenyard could live their volume reduction to 3%, which means that we have improved our market share in important markets for us. One fact is that we have suffered in the industry from as I'd say, the first industry who has had the impact. We also think that once a new equilibrium will be reached also as an industry can pick up as well as the first. The only question, of course, always is when will this happen. Looking also compared to last year, then you have to take into account that 1 year back, we have managed a certain result based on certain macroeconomic geopolitical environment. One year later, when it was much more difficult, we have been able to improve our revenue, and we almost stabilized our EBITDA and that's very important for us because if on one hand, you increase your market share. And on the other hand, you keep your financial numbers more or less stable compared to last year, your relative position in the market is improving. And then what I said earlier, the moment that comes in new equilibrium, we also believe that we will have the opportunity for accelerated growth. The only question is when will that happen? And the other thing what we have noticed is that as you might be aware of, we are in a business model of integrated customer relationships with our key customers. And we have seen that our customers for which we have an ICR is better also than their competitors and also giving a more stable, robust and resilient environment to working, and that comes with a benefit of end consumers growers and of course, all of us, which is not easy because it is also the momentum that we have seen that especially in these days, it is so important to further keep costs under control and to keep prices in the supermarkets acceptable for end consumers, that is exactly the momentum to further discuss potential new ICRs with other clients, for which we also have the potential outlook that we could close 1 or 2 new ICRs next year. And so if you look at our current operating in this market, I believe that we stood up where we have to stand up. The only effect is, of course, there is so much certainty that we could not be more explicit about what will happen for this fiscal year or in the year last. However, what we have seen is that we believe that the resilience we have shown in last year, we will continue doing that. And looking so on the same grow of the current situations outside our industry, they'll not further deteriorate our position. In contrary, we believe that we are well positioned and that we keep up doing the good work and the good results as we have done so far. So in that sense, it is not that we are afraid for the future, but it is more the uncertainty because on one hand, it could be that things will escalate in the world. On the other hand, it could be that people get more rational and that piece will come and that LNG prices and all disruptions will slow down at ease, but we don't know when that will happen. And that's also why we have said we cannot give a firm number on our guidance, but we give this confidence, the fact that we will continue being remote to resilience and being able to also tell our clients that prices have to go up. There is no way around that. People understand that because we are very transparent and contrary to the food multinationals, we are less expensive, and you've seen that also in the supermarkets. And another important trend which you see is that -- also, the discussions between the food multinationals and our supermarkets is the fact that some of the supermarkets are now more and more changing their A brands to our brands, and that is, of course, for us very positive. So we believe that this is a very important future to go ahead. And also do not forget that it is not just this, it is our better position in the market, our deep client relationships but also the fact that governments want more and more healthy foods. And of course, you know our core product is the vegetables and food is 100%. So this is the future of our tenant and as ours. There are, of course, also the wishes of certain political parties to go to 0% on healthy products, and we also have set this is the momentum to also further accelerate that. There's no discussion necessary for these type of healthy products are on our products, and we should really accelerate as a society on this. And also, if you look at the longer term, I'm quite confident as we are on the right track. Having said that, in much more difficult situations, we kept our results level. We are winning market share. We see some other good opportunities next year coming up. Of course, it is difficult. And of course, we have to work very hard and keep convincing our clients that we do it like this. But I have no doubt also in the longer term that we can reach our ambition, as we have said. The only point is that I do simply not know when things will come to enhance these all disruptions in the world, but once there will be more stabilization, I believe we can accelerate our growth, not just this fiscal year but also towards a mid-term. So all in all, I think these are exceptional times. And I think that things have to be getting a new delivery, as I said. But I believe that the stakeholders do not like the situation we are all in, but everybody understands to a certain extent that these certain times have been mitigated. And so far so good, I would say, we are very pleased with the acceptance of our key customers, both the reality and also about the way we together work with our clients, but also our growers to further work to make all the processes more efficient, more smart, especially also more smart, more automated, less cost and less spillage and so on and so on. So I believe that we are very well positioned for the future and that ends my part's introduction, and I'm pleased to give the word to our CFO, Geert Peeters.

Okay. Thanks, Marc. I will run with you through the figures. I hope everyone can see this on their screen, and we will go a little more in depth on the group financials, the segment financials and give you key messages on some other items. First of all, as Marc already expressed, it was an exceptional year with quite some economic challenges. As you know, inflation, supply chain disruption were of challenge but even exchange rates, interest rates increasing all that together are very challenging, and we managed in the end to have still a strong result with the profitability very close to last year. Also, sales increased significantly. Let's start with that. Our like-to-like sales increased to 7.3% and even accelerated the second quarter because in the second quarter, we increased 10.1%, of course, main part is driven by prices. I will go more in depth by segment because in Long Fresh, we had a nice volume growth. Within Fresh, we felt that we slightly fell back. But as Marc already explained, we had a decrease, but we did it much better than all the market forecasts that we reached. On EBITDA, we managed to end at EUR 80.4 million, which is slightly below last year, about EUR 2 million below, with an EBITDA margin of 3.5%. I will further comment during, yes, in the segment overview because the dynamics in Fresh and Long Fresh are slightly different, but in line this with last year. Then on the net debt evolution, we decreased the leverage if we compare year-on-year with last year's September because please remember that we always build up stocks from spring time until November in the Long Fresh department. So typically, we have the higher leverage ratio in our mid-year report, which is declining back at the end of March and we decreased it from 2.8% to 2.7%. So we managed to further deleverage. And that means that our net debt before leasing debt ended up EUR 321 million, which is EUR 10 million better than last year, and we will explain later on in the cash generation, how we achieved that EUR 10 million. And then finally, in net results, we had a small decline as compared to last year, a bit in line with adjusted EBITDA. So we ended at EUR 7.1 million, which is EUR 1.4 million lower than last year, so still very much in line. If we take then segment by segment, which is the next slide. There, you will see that at the left side, you see Fresh, the right side, you see Long Fresh. And there, you will notice that in like-for-like sales, Fresh increased with 5.9% and I can tell you, if we make the split in the price and quantity impact that this is mainly price related, and please be careful because prices in Fresh are not only inflation related. They're very much related to all different dynamics that you see also in climate, in different sourcing countries because in inflation, we feel that we were not able to fully translate the sales prices. That's also why the EBITDA declined. But first of all, so it's mainly price impact. If we go back to the quantity impact, quantity was minus 3%. And it's what we explained before, in Europe, if we look to the Fresh fall report, the volumes declined 10%. So we only declined 3%. Why are we doing better? It's, of course, very much related to the integrated customer relations, which are much more robust, much more stable. So that's an important part of our business model. And yes, the decline, of course, you see in the Fresh market is also very much related to what happened in COVID, we're selling to the retail sector, and it's quite obvious that with reopening food service that some of those volumes moved into those channels and that the retail all over Europe had a decline, which is more or less a correction of extra COVID volumes and that's we are going back to pre-COVID levels. On EBITDA, I explained already charging through sales prices, it's not easy. We do utmost our best and we also see, if we look at the market reports that if you take the food, the price increases in food that in fresh fruit and veg, we are at the lowest in the industry. You see a lot of other foods with increases above -- between 10% and 15% increases in fresh or more between 5% and 10%. Of course, as Greenyard, we continue looking for operational efficiencies and synergies and I can only tell you that's what's happening in the economy. We only accelerate it and also our retailers, also mainly the ICR retailers are looking with us to further looking into creating win-win operational efficiencies. Then on Long Fresh, that's the right side of the slide. There we have a very nice like-to-like sales increase. It's 14.5%. The sales price increase, which is very much inflation related in this case. It's about 8%. That means that the difference, which is about 5% in quantity increase. So there, we managed to still increase volumes. Reason is also because we are also active in food service and food industry. And of course, these were picking up after the COVID period. So there, we see a nice increase in prices, a nice increase also in volumes, although I should say, in prices, it's not an easy given. We, as Greenyard, we have to manage this very carefully because you know we have very low margins and the discussions with our customers are very firm, of course, from that point of view. For the rest, volume increases gave us extra EBITDA and we slightly increased as compared to last year. Of course, it was also a difficult year because you have the war of talent. I can tell you we had some inefficiencies in labor where we lack labor and also the yields in -- because of the drop mainly in August were not ideal, but we managed very well to build our stocks more or less to the same level as last year. So that's a very positive given for the future. Then the next slides on financials, I will just briefly give you the main message. First of all, we always give you a slide on the below adjusted EBITDA items. So what's the difference between the adjusted EBITDA and the net result. As you know, our decline in net result, which is very small, only EUR 1.4 million, it's more or less in line with EBITDA. So that means that all the items in between interest, tax adjustment items, there are pluses and minuses. If you take the net financial cost, we improved. It's mainly because we refinanced Greenyard, as you know, we have a 5-year refinancing. We repaid our convertible bond in December '21, which was more expensive. We have sufficient headroom and very stable financing towards the future. At the same time, refinancing also means that you have one-off financing costs of the previous financing, which are hitting the P&L. At the same time, we have also positive interest rate hedges and we are very positive about our interest hedging we did because we were able to conclude them before summer and it also means they are at good rates and about 86% of our interest based on the end September debt is fixed at this moment, which is really good. Income tax slightly increased. It's mainly related to some deferred tax impacts, which were very positive last year, a little bit lower this year, but also a slight impact. And all the adjustment items, these are reorganization costs, project-related costs, all that are very limited numbers. Last year, it was more positive, but it was because of the fact that we did the divestment of Prepared Netherlands and Bardsley on which we had some gains which were one-off at the moment. If we then take the next slide, net financial debt, I already announced that year-on-year we have a EUR 10 million positive cash improvements. This bridge is showing as compared to March, so not year-on-year, but starting from the end of the year. And then, of course, we have an increase with -- in the end of limited increase, we increased from EUR 304 million. If we exclude the lease debt of EUR 328 million, so that means that we have EUR 24 million extra, and that comes very much together with all the inventory buildup. And on the next slide, we show you a little bit more because inventory buildup was much higher than the previous years, not in quantity but mainly in price because also there we have inflation and that the inflation is also increasing our working capital. Luckily, we were able to compensate partially, again, with accounts payable and accounts receivable improvements that we were managed to work out. For the rest, you can have a look in detail to the cash flow. Richard has asked for the questions on it. Perhaps one item I still want to mention is the CapEx. We ended up for half year of EUR 27 million. For the full year, our intention was to go to about EUR 70 million. I can tell you, yes, we will not achieve that. That's also one of the reasons why we see the other delays also in achieving our ambitions because it's merely impossible in this economy to have. If we order something, the lead lines are much, much longer than before, sometimes it's 6 months, sometimes 12 months, sometimes 18 months, so we continue committing our CapEx, it's only taking a longer time in order to get them operational. So that's important to note. Next slide, we just added because we are talking about important fears on that inventory buildup. At the left side, you see that the inventory, what percentage it is of our total net financial debt, including the leasing debt. And if you take September '21, it was 63% of our total debt and now it increased to 74%. And so it's more than 10% extra. And at 10%, of course, it's highly related to the higher prices, but you see at the right side there, we only show the Long Fresh stock. So we have a little stock in Fresh, but in the Long Fresh, we have the main part of the inventory. And there you see that in price, we have an increase of more than EUR 40 million. So that's extra in working capital. But luckily, at the end of the year, that's decreasing again and when we're selling that inventory, we have also sufficient liquidity headroom based on our refinancing. So we're -- it's for us comfortable to absorb this. And very important that we want to stress even in volume, we do with 5 million better so despite the drop despite all the difficulties with labor, with supply chain, we were able to build a good stock, which is, of course, a good basis for the future sales. And then to finalize the leverage, but you already have all the information, we declined from September last year, the 2.8% to 2.7%. So it's another downward tick of 0.1%. And of course, as compared to March, there is an increase because we have the inventory buildup, as I already explained, within this case, not only quantities that are building up in the Long Fresh high season, but at the same time, also the inflation kicking in and which is impacting the net debt but still very much in line with our own expectations. So we are very pleased with this outcome. So that's for the financial overview. Dennis?

Okay. So thank you very much for the explanation and the clear guidance throughout the presentation. I would like to invite all the investors now for a round of Q&A. [Operator Instructions] I see no questions, we'll give it 1 more minute. Okay. I guess that all is clear. Of course, if there are any follow-up questions, feel free to reach out and then we have to respond and happy to give you some more information. With that, I would like to thank Mr. Zwaaneveld and Mr. Geert for their explanations. Thank you for your participation, and hopefully see you all later. Sorry, there was one question for Geert. For the upcoming season, there might be less supply of fruit and vegetables, what are the difficulties and does it have any opportunities?