Greenyard : announces full year results for the year ended 31 March 2019

Greenyard lands full year profitability at upper end of its guidance at € 64,5m. Recovery started thanks to Transformation Plan. Important new contracts signed.

Sint-Katelijne-Waver, Belgium, 4 June 2019

Key Financials - Accounting year ending 31 March 2019

• Greenyard has faced a number of challenges in the past year, ranging from fierce market pressure in its Fresh segment where it is transforming its business model into a partnership model, combined with extremely dry climatological circumstances in its prime harvesting season in its segments Fresh and Long Fresh, to managing the consequences of a recall action in its Frozen division. Greenyard has taken decisive steps and has appointed a new co-CEO, Mr Marc Zwaaneveld to help transform the company. Today, Greenyard is executing its Transformation Plan and seeing the first indications of recovery.
• Sales. Overall net sales amounted to € 3.911,5m, indicating a decline of -4,3% YoY.
• • 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 year. 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).
  • 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% YoY).
• Adjusted EBITDA landed at upper end of the guidance. Greenyard's adjusted EBITDA amounted to € 64,5m, at the upper end of the range of its guidance given in January 2019. The decrease of € 64,3m YoY (-49,9%)is attributable to the following elements:
• • 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.
  • 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.

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• • Greenyard continues to invest 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.
  • Furthermore, Greenyard has executed various projects to reduce costs in among others logistics, waste management, procurement and labour (reduction in workforce), which are on track and expected to result in an improved adjusted EBITDA 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.
• • Adjustments. Greenyard is currently in the process of a further transformation of the company, 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).
  • 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 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 amounted to € -45,7m, leading to an overall net result of € -237,7m.
• Net financial debt under control. Net financial debt (NFD) increased by € 37,2m ending 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 division. Greenyard also received € 120m 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 the 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 resulted 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.

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• Interested parties are invited to listen to a live webcast by visiting the following link:https://globalmeet.webcasts.com/starthere.jsp?ei=1247919&tp_key=b10cc74529. The call will begin promptly at 9:30 a.m. (CET). An audio replay of the conference call will be available on Greenyard's Investor Relations webpage in the coming days.

Quote of the co-CEO's:

Hein Deprez, co-CEOsaid today: "Last accounting year was a transitional year. We have put a lot of effort and time in shifting our model further from a transactional model in fruit and vegetables to a real partnership model with our retailers and this shift proved to be more challenging than expected. Given the unexpected impact of the extremely dry summer in our Fresh and Long Fresh segments, the recall action in the beginning of the summer in Long Fresh, but in particular, the longer than expected market pressure in our key Fresh markets, Greenyard experienced difficult times, which called for decisive actions. We have appointed Mr Marc Zwaaneveld as co-CEO and together with our colleagues, we have taken important decisions to transform Greenyard into the global partner of choice for our customers. We are consolidating the company and using our strength and scale to increase our efficiency to the benefit of all our stakeholders, colleagues, customers, consumers and shareholders. Today, there is still a way to go, but we see the first promising green shoots of the Transformation Plan gradually pushing up the results."

Marc Zwaaneveld, co-CEOadds: "We have a solid Transformation Plan which we are meticulously implementing today. The first results of the new accounting year are above budget and above last year and already show that Greenyard has a lot of unleashed potential. By driving a stringent execution of the Transformation Plan, we can unlock large untapped potential that will improve our efficiency and profitability. In addition, various divestments as well as conversations with potential cornerstone investors are ongoing. We refocus our footprint whilst continuing to guarantee our customers the service levels they are used to. We are working diligently to improve the profitability of our company again with a stronger balance sheet that is more robust and built for the future."

Figure 1 - Key financials

Key financials	AY 18/19	AY 17/18	Difference
Sales (€'000 000)	3.911,5	4.085,6	-4,3%
Adjusted EBITDA (€'000 000)	64,5	128,8	-49,9%
Adjusted EBITDA-margin %	1,6%	3,2%
Net result (€'000 000)	-192,0	-1,7
EPS continuing operations (€)	-4,48	-0,05
NFD (€'000 000)	456,3	419,1	8,9%
Leverage	7,1	2,8

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Segment review

1. Fresh

Figure 2 - Sales & adjusted EBITDA evolution

Fresh	AY 18/19	AY 17/18	Difference
	€'000 000	€'000 000
Sa l es	3.188,7	3.342,9	-4,6%
Adjusted EBITDA	25,0	72,7	-65,7%
Adjusted EBITDA-margin %	0,8%	2,2%

Bearing in mind that there is very limited foreign exchange impact and an M&A/divestitures impact of 0,4%, sales declined internally by 5,0%, mainly due to lower volumes in the key markets, mainly in Germany and, to a lesser extent in Belgium primarily due to the continuing market pressure, as well as the quantity, quality and price impact of the extreme summer weather. Volumes declined in combination with a price deflation on certain key categories, across all main companies in Fresh.

On the other hand, Greenyard continues to note the resilience of its partnership models in this challenging year, both in terms of sales and margin. In this respect, Greenyard has closed additional partnerships with large important retailers Carrefour and Delhaize in the months following 31 March 2019.

Lost volumes also impact adjusted EBITDA, which drops by 65,7%, translating into a margin of 0,8%, versus 2,2% last year.

2. Long Fresh

Figure 3 - Sales & adjusted EBITDA evolution

Long Fresh	AY 18/19	AY 17/18	Difference
	€'000 000	€'000 000
Sales	722,8	742,8	-2,7%
Adjusted EBITDA	41,9	56,7	-26,2%
Adjusted EBITDA-margin %	5,8%	7,6%

Long Fresh sales were mainly impacted by the recall in the Frozen division, which caused a temporary slowdown in sales, and the extreme drought in Europe. Sales decreased by € 20,0m versus last year, representing a decrease of 2,7% (including a 0,4% negative FX impact). The majority of this impact was in H1 of the AY 2018/19 and a recovery in the subsequent quarters was evident.

The adjusted EBITDA decreased by 26,2% (-€ 14,8m) versus last year, caused primarily by the lower cost absorption effect in both the Frozen and Prepared divisions due to the extreme drought in the harvesting season, but also by the impact of the recall in the Frozen division (due to the production stop in its Hungarian facility). After the balance sheet date, Greenyard has announced the sale of its Hungarian Frozen factory in Baja.

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Adjustments

Figure 4 - Adjustments made for one-off items from operating activities

During summer, Greenyard organised a large recall of frozen products from its Hungarian facility, subsequent to an investigation by the European Food Safety Authority in a European outbreak of a Listeria contamination. Greenyard incurred a non-recurring cost of € 25,7m (net of insurance proceeds) related to the recall and destruction of frozen vegetables from its Hungarian facility and other related consequences thereof.

The transformation costs mainly relate to provisions for redundancy of personnel consequent to the Transformation Plans to be executed in the beginning of AY 19/20. A smaller part of the amount is related to the closure of plants e.g. distribution centres in Germany and the frozen plant in Baja, Hungary.

M&A and other project costs are mainly related to external projects costs incurred in relation to the Transformation Plan with a view on identifying and realising cost savings, running the disposal processes, looking for a cornerstone investor and supporting the bank waiver process.

Finance result

Figure 5 - Finance result

Net finance income/cost (-)	AY 18/19	AY 17/18
	€'000	€'000
Net interest expenses	-35.184	-28.736
interest expense	-31.696	-29.275
interest income	465	539
Amortisations (CB, RCF, …)	-3.952	-3.688
MtM & Exchange gains/ (losses)	-294	-478
Bank & Other finance expenses	-2.478	-5.391
Finance result	-37.955	-34.604

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