Greenyard NV (GREEN) Earnings Call Transcript & Summary

Hello, everyone. Welcome to the Greenyard Full Year Results Webcast. As you may know, our web presentation may contain forward-looking statements reflecting management's current views, and uncertainties and other risks may cause the actual results to differ from future results. We are, of course, providing information herein as of this date, and we do not undertake any obligation to update in light of new information, events or otherwise, and we also disclaim any liabilities for statements by third parties and does not undertake any not undertake any obligation to correct. On the agenda for today is a discussion on the operational and financial highlights, after which we will go to an open Q&A. My name is Dennis Duinslaeger. I'm the Investor Relations Director, and joining me in today's call are Mr. Hein Deprez, Founder and Co-CEO; Mr. Marc Zwaaneveld, Co-CEO of the Group; and Geert Peeters, CFO. And with that, I would like to hand over the call to Mr. Hein Deprez for his opening remarks.

Thank you, Dennis. As a start, I'd like to mention that we can [indiscernible] referring to the positive results over the last year, despite a tough macroeconomic context. We had an increase of 8% of our sales -- net sales to more than EUR 4.6 billion, and we increased with [ 0.5% ] our EBITDA. The volumes that we did are flat over the last year, and Marc will explain more about that later on. Our net profit reached EUR 9.3 million, and we decreased our leverage from 2.4x to 2.2x EBITDA. The important message is that the reason that we could further develop good results are mainly our ICR model that we implemented, the integrated customer relations, the partnerships with the retailers that we continue to build out. Also on convenience products, we continue to develop further, and we created also a lot of efficiencies further in our organization. Implementing our Strategy 2030 is going on and continuous. And on trend with its vision on the future of food. What means that further, that's like we explained already several times, I will not go deeper into it, improve our product situation. We increase, for example, with convenience and the ICR model, and then imagine what we can develop further with a lot of new things that we have in our minds. We continue to invest in our future with innovation of new products, a small acquisition that we did, the Gigi Gelato is a great example of that, of a pure plant ice products that we brought into the market and that by our organization can go fast into retailers of Europe. And then also sustainability is a very important topic in our operation, and we continue to develop that further. We published our road map also in our annual report and our performance is on track. Marc, up to you for the further explanations.

Yes. Thank you, Hein. And good afternoon, everybody. Before I step into the details, I would like to remind you of our Strategy 2030. Maybe you can remember that we talked about improving our business, increasing our business and that we mention where we are going to. If I look where we stand today on improving, I'd tell you that we gained another efficiency results in the last fiscal year. And it is, of course, very important during an unprecedented time of macroeconomic and geopolitical terminal. Having said that, as Hein also mentioned about our ICR, we saw again that our model was very firm and robust in this difficult environment. On top of that, we announced yesterday that we have closed another ICR cooperation with Dohle HIT, which is important. It's a very nice and a very interesting supermarket chain. It's more than average growing at the high side of the quality and also, let's say, a very important regional presence. And the good news also is that we expect another 1 or 2 ICRs to be contracted in the course of this fiscal year coming up. What we also have seen is that essentially, we are focusing on a level of sustainability. And sustainability is at the core of our organization because, by definition, our products, our food and fresh are sustainable products. On top of that, we are working very hard on making the whole supply chain better. And for that, we have, as you know, set our targets going forward. This year, we were audited, and we got remarks all that we were one of the example companies they have now been auditing. Also, our ESG ratings have further gone up in the last fiscal year. So we are right in the right platform, let's say, the improve side. So if you look at the increase of our company, on one hand, we have the convenience products. We have already put a lot of new products in the market. And also, we are currently working hard in doing even more on that. And that is one of the key focus areas we are working on this. Also, on increase in M&A. You might have seen also in the press today and then also a press release that we believe that the market trends which are out there gives us a lot of opportunity to further leverage on the way we have organized our way of work. And the core of that is our ICR model. It is the long-term, deep integrated cooperation with our customers. And by doing that, you'll see that this is successful in these difficult times. And by doing so, we will also see that this climate change with more transparency in the market with the visibility of products, more efficient products, a good price to the consumers, to your growers. We think that the consolidation of our sector is upcoming. There is a need, but also a very good opportunity to further work on all these positive elements via consolidation. And the consolidation can be done, for one example, on a regional basis, you can do it on a product basis to secure the few trends that you see, that a lot of supermarkets are going more and more on a pan-European scale. And we are -- because our footprint, we can follow, and we can add the selling they are looking for. But also, if you have further cooperations with other companies in whatever form, you can also ensure the capability as we are already doing, by the way, because you see that even in the latest climate situation, because of our long-term cooperation display of working together, we can ensure that the shelves are filled with the fresh and the frozen and the prepared products as we are. So that is something I believe we are really going forward with that. We want to play an active role in that. And then last but not least, on the Strategy 2030 is about imagine going forward. We have really good innovation process in place. We are working with certain very interesting start-ups, as Hein has announced the Gigi acquisition, which is, let's say, in the early stage. And we are also working on very interesting innovations with respect to, for example, the plant tasty kind of products in that you can increase the number of moments consumers will eat our products. And we are going to launch certain of those products in the upcoming time. Then stepping into also last year. I told you they were very difficult times if you look at in our society. And because of the crisis about consumption issues, that people, they don't have too much to spend. You saw that the per capita consumption on the fresh products in Europe in the sector decreased by almost 10%. That is huge. And the good news was that because of our model, the way we are organized in the Fresh division, we did not decrease by almost 10%. We only decreased by less than 2%. And the good news is that, on one hand, this is then implementing that you indicating for it that you are winning market share compared to your competitors. And that is a good news, and that is, for us, a very trustful way forward. Second to that is that we are a company who is not only delivering fresh produce, but also the long fresh like the frozen and the Prepared products. And what you saw is, and that is because people have to spend less on food, they can shift by downsizing to the -- a little bit cheaper products, which is still to be bought from our company. And because they have increased by 4.5%, you see that we were almost flat in volumes by last year. And that, of course, shows our robust way of our organization. And also it gives a much better stepping point, at the moment, the consumers going back and eat more fresh fruits and fresh vegetables. And that trend will come back and then we believe that we will benefit more than our competition as we have increased our market share, and we believe we can benefit in the coming time. So I think that it's very important, that we have shown robustness in our way of working. If you then look, talking about the integrated customer relationships, it is so important because even with the extreme situation we were out there, we managed with our customers to also keep the market shares of our customers to a high level. And we also gained further possibilities to optimize the whole supply chain. And there are more and more companies out there who are interested in our way of working, and that is also why we have settled the contract as we have announced yesterday. And we have good faith that 1 or 2 more will be followed in this year. Also from an efficiency and inflation point of view, on efficiency, you know that we in the last years have an ongoing focus on efficiency. We have managed out quite an impressive amount further by optimizing transport logistics, whatever efficiency you can -- productivity, you can imagine that, but also on the inflation, we were very clear and transparent from day 1. We have told our clients this very open and controllable information, what the effect of the inflation was on their products. And that is, I think, also the way -- the reason why we were able to pass through the inflation, which were fair and honest. And I think it only shows that our customers understood that we are with them for the long-term. Having said that if you look now for the market trends going forward. There are a lot of market trends. Think about there's a lot of regulation going forward. The way we have to put in our sustainability and our social responsibility up to our grower rare sort of the growth is a huge task. You have the growing health consciousness. We have the climate change and extreme weather conditions. And we have geopolitics and those kinds of things, the whole technology digitalization. There are market trends which we say, okay, how can we be an answer to our customers? First, we have -- under the leadership of Hein, we have invested in the past in the broad footprint. So we have a certain scale. We, of course, are looking, what I told you before, to further look on that in the kind of cooperation with other companies. We also want to play that role, and we believe that it is possible. It is without doubt that there will be a change in those trends, the trend of less CO2, the trend of better health, the necessity of the availability of our products, but also at the price level, which is doable for our end consumers means a certain consolidation coming up, and we can play that role and we believe that it will be done. And then Dennis, we open a hand to a little bit explanation of the Gigi acquisition.

Thank you, Mar. Gigi, our pure-plant ice as an innovation is something we're very happy with it because it's one of the possibilities to increase consumption of fruits and vegetables by creating products, convenience products where you can consume through the veg and different moments than the classic consumption moments that you can have with these products. So Gigi Gelato, a product where perhaps consumers can feel guilt-free when they consume it, and it is a product 100% powered by nature. So it's not an ice cream, it's pure-plant ice with fruit and with vegetables, but with a creamy taste. It is -- the taste is fantastic, the texture is a fantastic. And we are introducing it now to different customers. And for example, we will roll it out, all the different products that we have in this range from the 10th of July, for example, with the Dohle HIT and Belgium nationwide. So step by step, it will be ramped up with different retailers over the next months and years. Next to this product, we developed also a lot of other new things, and one of the big examples is that on the mealkits. And we produced last year, to give you once an example, more than 20 million units from these mealkits and something which is built over the last 3 to 5 years. These are big examples from -- in which direction certain products will develop in the future. But also very important is for us, like already indicated, is sustainability. We have a clear road map that define targets, 5 important points there on our agenda. First of all, the climate change, what can we do as a company to help to reduce climate change. And we put very strict targets for ourselves. And so we have a reduction of 70% in Scope 1 and Scope 2 CO2 emissions, in our direct controlled operations. And in the Scope 3, we are also committed to the rules for our suppliers by 2026. And there, we started already, we have already there a reduction versus our baseline and more than 10% suppliers on really Science-based Targets implemented. And a larger group is -- we are actively working on that, and we organized trainings and info sessions for our suppliers to come to this reduction of CO2. Food waste is also something which is for us is very important. The system and the concepts that we are introducing like ICR, close partnership with retailers, this led to what consumers are needing in the market and a function of them development products is already bringing the food waste massively down. That lower percentage that we have today, we try to find further solutions for that, and so to -- for example, to valorize all this residue streams and by-product flows of our food production by 2025. To give you an example, we have more than 190,000 tons of product that is not directly going in our classic chains for our customers, but that we are reusing for animal feed or for bioenergy. And 58% of this flow is now reduced, and we are increasing that year after year to bring that to a point that we have a full recycling processes that we use, all what we produce or all what we source over the world into valuable products. Water management is the third point, which is, for us, a very important issue. We work on our own distribution platforms and factories, like in our Long Fresh factories, where we try to reduce at the maximum our water intensity. But we work also together with our growers to see in the future, which areas in the world are the right areas to have a sustainable production. And we check and control our growers on that, and we see if we can come to a point together with these growers to sustainable water sources for sustainable production in the future. The water risk assessment is for 85% of this moment covered with our growers, and we like to bring that to 100% as fast as possible. Packaging, also something very important. What important is to mention is that packaging sometimes is also reducing waste. It is -- sometimes, we have fantastic results in having a longer shelf life for our products by using the right packaging. But we continue also to work on packaging, which is 100% recyclable. That will be done by 2025. And further, when it is not necessary to have packaging or certain packaging, so certain plastics, we take them out of our product offering for the future. And then at the end, the fifth important point is a responsible sourcing. We go for 100% certification for our growers in the high- and medium-risk origins by 2025 and a level of social compliance, ethical behavior and so on, which is, for us, really important, that we can go with products where consumers are happy with and comfortable that these products are produced, sourced and coming into the supply chain in a correct way. And then a few examples how sustainability is part of our everyday operations. First of all, in finance, we have since last year, the new sustainability-linked loan. And we achieved our 4 KPIs that we had to fill in with the direct results that we reduced also our margins on these loans with a small percentage. It is a small percentage, but it's really important to have this in place and to prove to everybody around us, to all our stakeholders, that we are really working hard on that and that we achieve our KPIs. In logistics, we started with our first e-trucks. We are doing that on roads, where we have distance and timing under control. But step by step, we see opportunities in it to bring this type of trucks into our system and also to help us in our CO2 footprint for the next years. We rolled out also a supplier code of conduct, was rolled out over the last years step-by-step, where we are focusing on responsibility, prevention, compliance, obligations, protecting environment, safety in our factories and in the whole chain, and all sort of guidelines and regulations that we have to follow from governments and authorities. In the operations, water projects are very important for us. Like I explained, we have in our factories several projects going on to purify water on-site and to reduce this water at a constant rate. And we have cooperation with PIDPA, for example, here in France, which is one of the important water distributors where we are working out in cooperation with important investment programs to have this water under consumers water use under control. A lot of the products, like I already mentioned, there are certain examples. We go to pure-plant healthy product assortment. Pure-plant is the power of pure plants, not only important for our health. But in the future, more and more, I think consumers understand also that in our food habits, in our food diets that we have, we need to go to pure-plant to have a possibility to save our world for the future and to keep climate change under control. It is the only way to obtain that. And pure-plant food, which is possible to have that with more and more products, with healthy products, with tasty products, we can reach that, and we are really in the center of the possibilities for the future. Then waste, as an example, there, what we are doing, we invested in the last year and important in the citrus line here in the Benelux, and you can see there is no production of citrus here. But we bring products as close as possible to consumers at a certain moment, and we try to pack, to sort, to control quality just before we deliver to our consumers. And we -- by doing that with high-tech operations, we can gather a lot of information, a lot of data on quality, on performance of growers. And so we can select better and better for the future, the right partners, the right growers, the sustainable growers so that we can have a better product for our consumer and a product which will become cheaper because it is better with higher use, better quality. And despite the fact that we will [ primarily ] grow a better price, we will have a cheaper product in the store. And that's a very interesting paradox, but if we can increase the back outs of production of growers by having a lot better yield in the field, but also a lot more product which is really adapted to the needs of the consumers, at the end, the kilo price will go down and will become more attractive and more sustainable for the future. These are the few examples from what we are doing, and we have been working on up to now and which will continue for the next years.

Okay. Thanks a lot, Hein. We're going to dig a little bit deeper in the figures now. And of course, you all know our key figures already a couple of weeks because of our press release. And we just have reconfirmed them today with a lot more detail. If you look first at the -- to our sales figures, it was already mentioned by Marc and Hein, we had a like-for-like sales increase of 7.9%. We're talking big numbers because if you take it in absolute numbers, it's more than EUR 350 million. So we're talking big amounts. And of course, this year, it's all in the sign of economic uncertainty and inflation. That means one of the main drivers is, of course, the prices. We come back to that later on. But out of the 7.9%, 8.5% was price increase. That means that there's a little small decrease of volumes left. And as Marc already explained, we're especially proud of Greenyard in a market where the average consumption declines based on the market studies of minus 10%. That decline was really limited, thanks to our ICR and thanks also to volume growth we have in Long Fresh. If you then take our EBITDA, we had a slight increase of 0.5%. If you take this in percentage margin, we go from 3.8% to 3.6%. Of course, in a market where prices are increasing every month, and I'm referring here to the input prices, we charge through those prices but it's, of course, always a delay because it was growing so fast. And we are also very transparent to our retailers, so we charge absolute numbers. And that means that temporarily, we have a decline in margin percentage. But you will see later on in our ambition that we believe in the coming years to grow back to 4% or direction 4%. Then leverage, we continue to deleverage. We are doing that already a couple of years now. We mentioned clearly that we wanted to end between 2 and 2.5. So we are now at 2.2 even at the low end. And that comes with a lot of advantages, of course, [indiscernible] increasing interest rates. We have a leverage grid in our margins with the bank. So that means also it's bringing down the margins, which is very important in these times. Net results, we have declined from 16.9% to just below EUR 10 million. We come back to that later on because it's mainly related to nonrecurring impacts we have this year, and we don't expect to repeat in the coming years. More interesting to see is to look at the dynamics of both segments. You have Fresh and Long Fresh. And it's probably already clear that we had some declining in EBITDA in Fresh, about a bit more than EUR 6 million. And we fully compensated it's with an extra EUR 6 million in Long Fresh. In Fresh, there was clearly a lot of pressure this year. First of all, you had the inflation, and you all know that inflation, you have all seen also the -- in press article, the results of retailers. But it's not easy to charge it through to the consumers for them. Also for us, we were able to charge to a big amount, but there's also some delay and it was not the full amount we were able to recharge. However, out of the 6.2% sales increase, we managed to do a price increase of 7.8%, which is still significant. Volumes, minus 1.9%, just to tell something about the dynamics of the market, the minus 10%. We already explained how important the ICR are. We are still at 3/4 of our revenue. And as we mentioned yesterday during the press release, we will add Dohle HIT in the future. So we will go above the 75% towards the future, and that makes us much more robust in volumes. And of course, volumes were difficult over the last year because of the purchasing power also of consumers. Mainly in the months of October, November, December, you see that consumers were very afraid of what was happening with the energy prices, were a little bit reluctant. But I can tell you over the last months, perhaps also related to salary increases, we see that volumes are improving again. Of course, we were also in the post-COVID period. Fresh was -- had quite some positive stimulus from COVID because of the out-of-home consumption, which was not open, and that reopened over the last year. On the other hand, we benefit in Long Fresh, and that's the strength, of course, also of the business model of Greenyard. Important to know is also the term of down-trading. You see in times where consumers are more afraid, whether it's pressure on purchase power, it means also people go more for private label. And that's exactly, of course, what we do in Long Fresh. And the other thing you see, they look for cheaper alternatives, and Prepared and Frozen are as healthy as Fresh, but so much cheaper if you take it per share piece of products that you consume. So that means that volumes were positive in Long Fresh, exactly 4.5% we have as an improvement. And we did, of course, the price increases we needed to do to keep our company and also the value chain healthy, and that was around 12%. Then if we go to the net results. You know that EBITDA was slightly increasing. If we then first go to the EBIT, then we have a decline of EUR 10 million. And if you go in detail, of course, we have a slight increase of depreciation because we are gradually stepping up our CapEx program. You will see it later on in the cash flow. Last year, we also took the opportunity to further strengthen our Fresh organization. You've seen Fresh, is clearly the trends of retail, but also the trends in the market, as Marc described, that you work closer over the different countries. And that means that we were continuing doing some adjustments. One of the most important we decided is that is to go in Fresh France to an asset-light model, where we will continue serving the French market, but integrate the operational organization in the neighboring countries. And there, we made a nonrecurring correction. And that's we're currently implementing in the coming months. We also announced in March last year, to wind down the Fresh UK operation. I repeat that U.K. remains very important for us, but mainly in Frozen. We're a market leader in Frozen in U.K. In Fresh, the wind down is almost completed. And of course, the costs related to it are also in our P&L that are not coming back in the future. Then on cash flows. You can study that graph more in detail later on. I will just take some highlights. We did a nice deleveraging from -- EUR 303 million to EUR 277 million. Of course, the main drivers are the EBITDA minus CapEx and the taxes and interest we pay. But just to highlight, first, we have some nonrecurring items. It's related to the P&L, but the cash items that are mentioned in this graph. We had about EUR 70 million, which is not coming back, which were nonrecurring. And then on the other hand, there were 2 big financing transactions over the last year, which brought some transaction costs, which are of course also one-off. First of all, the lease and lease back credit in June on the operations in Bree. Very good operation because we could do it at good yields with fixed interest. So we were automatically hedged on the interest also in that case. And we refinanced the company. As you know, we went from 6 to 11 banks with a package of EUR 420 million and very advantageous conditions. So that was also in finance an important event over the last year. Couple of things to mention still is the net working capital. If you study that one, you will see over the last 2 years, of course, we have an increase of inventory. And I can tell you this is hardly any volume increase because we manage the volume very strictly. We produce what's needed, of course, dependent on what the weather is bringing to us. But we are very close on our inventories to be sure that we can deliver our customers for 12 months. But of course, there is an inflation impact on our inventories. And over the last year, it was EUR 37 million. On the other hand, you will see that the working capital improved and not deteriorated despite that stock, and that's mainly about -- because of accounts payable and accounts receivable. We are further improving. That's -- there are several actions ongoing. As for example, we continue talking to our retailers. And definitely long-term relations, it's something where -- what can bring a lot in accounts receivable because we believe that long-term clients have to align their payment terms with what growers want to have. There's a unfair trading practice regulation of 30 days. So we stimulate them to pay quicker so that we also have less factoring. Our factoring increased with EUR 16 million, but that's less than the inflation impact. And of course, there are a lot of other things we do to manage the working capital efficiently. On CapEx, just to highlight that one. Last year, we did a CapEx of EUR 48 million in cash out. Now it's EUR 56 million. To be honest, we want to do EUR 65 million, EUR 70 million in line with the Capital Market Day. But of course, because of the volatility in the economy, uncertainty on input material to build new installations, there were some delay in delivering the projects that we approved. And on interest, there you see there's an increase of interest. Of course, what happens to us is the same as all companies. We have the EURIBOR below the floor of 0 in the periods before April, May. But luckily, we did quite some hedging. On average, it's about 75% of the factoring and the bank debt that we hedged, so that we can mitigate that increase in interest costs. Then the next slide is just to show you the trends of the leverage. But I think, that, I explained already before, and we see the pattern repeating from year-on-year, that we continue deleveraging. And then the last slide is just repeating our ambitions towards the future. It's also what you could read in the press release. And so we believe that this year, we go to EUR 4.9 billion of revenue. So you see there's another big jump to well at. Of course, still an important part, pricing related, but we see also that volumes are recovering. So we believe that margins might go direction 3.7%. And then 2 years later, we believe the guidance that we gave, and it's not a guidance but an ambition in the end, the ambition we gave during the Capital Market Day to go to 200 and 210 that we believe we can make that by March '26, and to have then an EBITDA margin close to 4%. I hand over to Marc.

Thank you, Geert. And coming to an end, I just want to briefly summarize our position today. I think that we managed well through a very complicated outside growth. We improved on many aspects financially and nonfinancially. We are working on very interesting and positive relationships with new customers by the new ICRs, which we have closed, and we are going to close. And also, we are in the heart of the fundamental change to a planned way of living. So I think the future looks bright, and it's up to you now to have -- share any questions you might have.