Greenyard : FY report 2018-2019

TABLE OF CONTENTS
REPORT OF THE BOARD OF DIRECTORS..........................................................................................................................................	1
PREFACE BY THE CO-CEOs ...........................................................................................................................................................	1
KEY FINANCIALS AY 18/19...........................................................................................................................................................	1
COMMENTS ON THE CONSOLIDATED FINANCIAL STATEMENTS...................................................................................................	3
DIVIDENDS..................................................................................................................................................................................	5
POSITION OF THE COMPANY: RISKS AND UNCERTAINTIES ..........................................................................................................	5
RESEARCH AND DEVELOPMENT, INNOVATION AND SUSTAINABILITY .........................................................................................	9
IMPORTANT EVENTS AFTER BALANCE SHEET DATE ...................................................................................................................	15
CORPORATE GOVERNANCE STATEMENT ...................................................................................................................................	15
INFORMATION FOR SHAREHOLDERS.........................................................................................................................................	39
KEY FINANCIAL INFORMATION ....................................................................................................................................................	42
CONSOLIDATED FINANCIAL STATEMENTS ....................................................................................................................................	45
CONSOLIDATED INCOME STATEMENT.......................................................................................................................................	45
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME .....................................................................................................	46
CONSOLIDATED STATEMENT OF FINANCIAL POSITION..............................................................................................................	47
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY...............................................................................................................	48
CONSOLIDATED STATEMENT OF CASH FLOWS ..........................................................................................................................	49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS..........................................................................................................	50
General information ...........................................................................................................................................................	50
Significant accounting policies ............................................................................................................................................	50
Basis of preparation............................................................................................................................................................	50
Changes in accounting policies and disclosures..................................................................................................................	50
Basis of consolidation .........................................................................................................................................................	51
Summary of significant accounting policies ........................................................................................................................	53
Critical accounting judgments and key sources of estimation uncertainty ...........................................................................	61
Critical judgments in applying the entity's accounting policies ..........................................................................................	61
Key sources of estimation uncertainty ...............................................................................................................................	61
Going concern.....................................................................................................................................................................	62
Segment information ..........................................................................................................................................................	63
Information about major customers...................................................................................................................................	64
Geographical information...................................................................................................................................................	64
Notes to the consolidated income statement......................................................................................................................	65
Sales....................................................................................................................................................................................	65
Operating expenses ............................................................................................................................................................	66
Personnel expenses ............................................................................................................................................................	66
Other operating income/expense.......................................................................................................................................	67

Net finance income/cost.....................................................................................................................................................	67
Income tax expense/income...............................................................................................................................................	67
Earnings per share ..............................................................................................................................................................	68
Discontinued operations.....................................................................................................................................................	69
Notes to the consolidated statement of financial position ..................................................................................................	71
Property, plant & equipment..............................................................................................................................................	71
Goodwill..............................................................................................................................................................................	72
Other intangible assets .......................................................................................................................................................	73
Biological assets ..................................................................................................................................................................	74
Investments accounted for using equity method ...............................................................................................................	75
Other financial assets and liabilities ...................................................................................................................................	76
Deferred tax assets and liabilities .......................................................................................................................................	76
Inventories..........................................................................................................................................................................	77
Trade and other receivables ...............................................................................................................................................	77
Cash and cash equivalents, restricted cash and bank overdrafts .......................................................................................	79
Financial instruments by category ......................................................................................................................................	79
Issued capital, share premium and other capital instruments ...........................................................................................	79
Stock option, warrant plans and performance share units.................................................................................................	79
Pension and other employee benefit liabilities ..................................................................................................................	80
Provisions............................................................................................................................................................................	83
Interest-bearing loans.........................................................................................................................................................	84
Trade and other payables ...................................................................................................................................................	86
Risk management policy .....................................................................................................................................................	87
Assets held for sale .............................................................................................................................................................	93
Other elements...................................................................................................................................................................	94
Subsidiaries, associates, joint ventures and investments recorded at cost ........................................................................	94
Main disputes .....................................................................................................................................................................	96
Off-balance sheet commitments ........................................................................................................................................	97
Related parties..................................................................................................................................................................	100
Events after balance sheet date .......................................................................................................................................	101
Fees group auditor............................................................................................................................................................	102
STATEMENT OF RESPONSIBLE PERSONS..................................................................................................................................	103
STATUTORY AUDITOR'S REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS ...............................................................	104
CONDENSED STATUTORY ACCOUNTS OF THE PARENT COMPANY GREENYARD NV, ACCORDING TO BELGIAN ACCOUNTING
STANDARDS............................................................................................................................................................................	110
FINANCIAL DEFINITIONS .........................................................................................................................................................	114

1

REPORT OF THE BOARD OF DIRECTORS

PREFACE BY THE CO-CEOs

"Facing one of the most challenging years in the history of the company, forced us to transform Greenyard faster to unlock the large untapped potential for the future"

Greenyard has faced a number of challenges in the past year, ranging from fierce market pressure in its Fresh segment where we are transforming our business model into a partnership model, combined with extremely dry climatological circumstances in our prime harvesting season in Fresh and Long Fresh, to managing the consequences of a recall action in our Frozen division.

The combination of all these events has forced us to rationalise our footprint, to revitalise our relationships with our main customers and with all of our stakeholders. Decisively, we have chosen to strengthen our management team for the hard road ahead and to immediately implement a Transformation Plan that was based on three pillars:

1. We need to revitalise our commercial relationships by advancing faster in the partnerships;
2. Operational excellence is and will always be top of mind and an element of continuous improvement;
3. We need to strive for financial health of the company after years of expansion and growth.

Today, we show that we are progressing strongly with our customers. In our Fresh segment, we have been able to forge more extensive partnerships with Carrefour and Delhaize, and in our Frozen division, we are pioneering a partnership with our longstanding customer Tesco. Other partnerships are in the making.

In parallel, we focus on executing the two other pillars of the Transformation Plan: we realise savings that will become visible in the next quarters, but are also laying the foundations for using our scale and synergies for the benefit of the company. Likewise, we execute the divestments that we promised, of which the sale of Greenyard Frozen Hungary is the first signed agreement. Other divestments are in equally advanced stages, while some others are getting started, but all are on track.

We also realise that it takes more effort to reach financial health and to restore the confidence of our stakeholders. That is why we continue conversations with potential cornerstone investors that will ultimately lead to a capital increase. We also continue to explore the sale of our Prepared division.

We strongly believe that Greenyard is at the forefront of shaping a more efficient, sustainable and quality driven fruit and vegetable landscape and is committed to make this happen.

We thank our employees, customers and other stakeholders for their continued belief and support. Our vision is to increase the consumption of fruit and vegetables and we feel that, by working as a group and in partnerships with our customers, the retailers, we have the tools to do that and to ensure a healthier future for all.

Hein Deprez & Marc Zwaaneveld co-CEOs Greenyard

KEY FINANCIALS AY 18/19

• Sales. Overall Group net sales amounted to € 3.911,5m, indicating a decline of -4,3% YoY.

1. Fresh sales amounted to € 3.188,7m, down € 154,2m from € 3.342,9m last year (-4,6%), mainly due to a volume decline from continuing market pressure in most of its key markets, in combination with the effects of the extreme weather conditions of last summer. In Q4, Fresh slightly recovered from its Q3 low performance by

reaching sales of € 810,7m (-5,0% YoY), versus Q3 sales of € 730,2m (-6,6% YoY).

• 1. Long Fresh sales amounted to € 722,8m, down € 20,0m from € 742,8m (-2,7%). The decline in Long Fresh is primarily due to the recall and related delays in production and distribution of Frozen products in the summer of 2018, alongside the effects of the extreme weather conditions during summer, resulting in lower crop yields, only partly offset by better product mix and prices. In Q4, Long Fresh continued its steady recovery from the previous period. Q4 Sales amounted to € 196,5m (0,8% YoY) versus Q3 sales of € 194,5m (-2,0%).
• Adjusted EBITDA lands at upper end of the guidance. Group adjusted EBITDA amounts to € 64,5m. The decrease of € 64,3m YoY (-49,9%) is attributable to the following elements:

2

1. Fresh: the ultimate low adjusted EBITDA of € 25,0m versus € 72,7m last year (-65,7%), resulted from a drop in sales due to the continuing competitive market pressure and due to price, quality and quantity effects of the extreme weather conditions. In addition, our mission to become the partner of the retailer and consequential shift from the transactional model to a partnership model has resulted in margin vulnerability in this transitional year. Greenyard's partnership models continue to perform well and show resilience and stability in challenging

market conditions.

• 1. Long Fresh: the adjusted EBITDA amounted to € 41,9m for the AY 18/19 versus € 56,7m last year (-26,2%). A loss in volumes and lower cost absorption, of which the majority is due to the recall in Greenyard's Frozen division, and the extremely dry summer are the main drivers of the decreased adjusted EBITDA.
• Execution of the Transformation Plan on course, showing first signs of recovery. Greenyard remains on course in executing its Transformation Plan. The Transformation Plan is expected to result in an increase in adjusted EBITDA of € 20,0m in AY 19/20, and a cumulative increase of € 44,0m for AY 20/21, resulting in an adjusted EBITDA of more than € 100,0m in AY 20/21. Greenyard already notes that its April 2019 performance ended above budget and above last year.
• 1. Greenyard continues to invest further in its partnership model. New partnerships have been announced with Carrefour, Delhaize and Tesco and more partnerships are in the pipeline. These new partnerships will start contributing to the results in the coming quarters. In this respect, Greenyard is shifting the majority of its Fresh sales into the more stable partnership model.

• 1. Furthermore, Greenyard has executed various projects to reduce costs in logistics, waste management, procurement and labour (reduction in workforce), which are on track and expected to result in an improved adjusted EBITDA already as of the coming months.
• Net result affected by one-off costs (adjustments) and non-cash impairment. One-offitems such as recall costs, reorganisation costs and a goodwill impairment in Long Fresh resulted in a net loss (before discontinued operations) of
• • 192,0m.
  • 1. Adjustments. Greenyard is currently in the process of a further transformation of the Group, addressing the competitive challenges of last year as well as recovering from the recall in its Frozen division in the summer of 2018. As a result, Greenyard is accounting for a number of one-off items, of which the main items are (i) recall

action and consequences (€ 25,7m), and (ii) reorganisation costs (€ 14,6m).

• 1. Goodwill impairment. A goodwill impairment on Long Fresh (€ 78,9m), due to a delay in the execution of the business plan in Long Fresh caused by to the events over the summer.
• Discontinued operations. Discontinued operations include the impact of the sale of the Horticulture segment, which was finalised in December 2018 and amounts to € -45,7m, leading to an overall net result of € -237,7m.
• Net financial debt under control. Net financial debt (NFD) increases by € 37,2m ended at € 456,3m, up from € 419,1m last year, mainly due to non-recurring costs related to the transformation and the recall in its Frozen divisions. Greenyard also received € 120,0m proceeds from the sale of the Horticulture segment, offsetting a deterioration of its working capital. On 11 April 2019, Greenyard signed a consent letter with its relationship banks for a covenant waiver period until June 2020, which allows Greenyard the time and calm to implement and execute its Transformation Plan. The consent is conditional upon realising the various transformation results, the divestment of non-core assets in a timely and diligent manner, the identification of a cornerstone investor that supports a subsequent additional capital raise, as well as the exploration of a sale of its Prepared division. Further to this consent letter, Greenyard's banks have waived the leverage and interest ratio covenants up to and including June 2020. For AY 18/19, the decrease in adjusted EBITDA combined with the increase in NFD results in a leverage of 7,1x.
• Divestments are on track. Greenyard is committed to reduce the Net Financial Debt and leverage in the coming three years to a leverage ratio below 3,0x. Combined with a gradual recovery of the LTM adjusted EBITDA over the coming years, Greenyard has identified assets that are no longer essential in maintaining its service level towards its customers and is in the process of divesting these assets. Greenyard is expecting to yield cash proceeds in a range of € 50,0m to € 75,0m. In the meantime, Greenyard has closed the divestment of its Greenyard Frozen Hungary facility in Baja. Other divestments are also in well advanced stages of divestment, while others are currently being prepared for divestment.
• Exploration sale of Prepared on course. Greenyard has initiated the exploration of the sale of its Prepared division. This project continues its course.
• Conversations with cornerstone investors ongoing. Over the past couple of months Greenyard has initiated conversations with a shortlisted number of potential cornerstone investors with the intention to close a deal at the latest by the end of AY 19/20.
• Dividend. The Board of Directors will propose not to pay a dividend for AY 18/19.