Fresh Del Monte Produce - Earnings Call - Q4 2019

Transcript

Speaker 0

Good day, everyone, and welcome to Fresh Del Monte Produce's Fourth Quarter and Full Year twenty nineteen Conference Call. Today's conference call is being broadcast live over the Internet and is being recorded for playback purposes. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. For opening remarks and introductions, I would now like to turn today's call over to Vice President, Investor Relations with Fresh Del Monte Produce, Christine Canela.

Please go ahead, Ms. Canela.

Speaker 1

Thank you, Julian. Good morning, everyone, and thank you for joining our fourth quarter and full year twenty nineteen conference call. As Julian mentioned, I'm Christine Canela, Vice President, Investor Relations with FreshGamani Produce. Joining me in today's discussion are Mohamed Abu Ghazali, Chairman and Chief Executive Officer and Eduardo Bezara, Senior Vice President and Chief Financial Officer. I hope that you had a chance to review the press release that was issued earlier this morning via Business Wire.

You may also visit the company's website at freshdomani.com for a copy of today's release as well as to register for future distributions. This conference call is being webcast live on our website and will be available for replay after this call. Please note that our press release includes reconciliations of any non GAAP financial measures we mention today to their corresponding GAAP measures. I would like to remind you that much of the information we will be speaking to today, including the answers we give in response to your questions, may include forward looking statements within the provisions of the federal securities Safe Harbor laws. We ask that you review the forward looking statements information included in the press release we issued this morning and in the company's most recent filings with the SEC.

With that, I am pleased to turn today's call over to Mohammad.

Speaker 2

Thank you, Christine, and good morning, everyone. Our performance in 2019 highlights the decisions we made in 2018 to realign certain production units and the progress we have made towards shifting our strategy to becoming a more value added and more diversified company. We advanced on many fronts in 2019, which I will highlight in a minute. However, I want to first touch on our fourth quarter performance. The fourth quarter is traditionally a tough quarter for the industry.

Also our quarterly results were impacted by our Mann Packing Units voluntary recall in November. To a lesser impact, competitive pressures on avocados and pineapples affected selling prices in the quarter. Collectively, these fourth quarter factors constrained our full year performance in 2019. Now I would like to highlight a few of our accomplishments in 2019. We gained strength in our fresh and value added business, driven by demand from both our existing and new customers, particularly for our fresh cut fruit product line, which continues to expand globally.

We proceeded with our rollout of the new healthy innovative products by introducing our Better Break vegetable based on the go convenience snack pack, Snackline. We opened our new avocado production facility in Mexico, which will allow us to increase our pack out capacity further strengthening our competitive position. In 2019, we augmented our strategic direction by expanding global customer supply partnerships. I'm encouraged about how these key relationships are trending as they play important roles in the value added product diversification strategy for our distribution channels. We reduced our debt in 2019.

We brought back our quarterly dividend and we repurchased shares. We also initiated capital investments in technology, automation and logistics as part of our strategic goal to transform Fresh Del Monte to be a technology driven and efficient producer. Looking forward 2020, I'm optimistic about the future of Fresh Del Monte. We are a different company today than we were a year ago. We have embarked on a five year plan to transform Fresh Del Monte.

The key elements of our transformation involve protect and grow the core business, drive innovation and expansion growth on value added categories, evolve our culture to increase employee engagement and productivity, become a technology driven company to drive efficiencies, become a consumer driven company and sustainability, which means waste less for better work tomorrow. While this transformation is a multiyear strategic plan and there is still a lot of work to do, I continue to be inspired by the commitment and resilience of our organization as we transform our company. I look forward to updating you regarding the actions we take and our path forward in our upcoming earnings call. Before I turn the call over to Eduardo, I would like to mention that we are carefully monitoring the coronavirus outbreak and the supply and demand dynamics in the global markets we serve. Due to service cancellations and containers being unable to clear at certain Chinese ports, industry supply is being shifted to traditional markets such as Japan and Korea and may have an adverse impact on our operations.

Like everyone else, we are closely following developments of the rapidly changing situation and our ability to supply our customers in the region. At this point, I would like Edouard to take over in the

Speaker 3

Okay. Thank you, Mohamed, and good morning. As Mohamed mentioned, our Mann Packing unit announced a voluntary recall of products in our fresh and value added business segment in November 2019. As a result, we reported adjustments of $11,000,000 related to inventory write offs, sales claims and other costs associated with the product recall. We expect to have some continued impact from the recall in 2020.

I'll now get into the results for the fourth quarter and full year 2019. In regards to the product lines, I will update you on fourth quarter numbers. For the full year 2019, adjusted earnings per diluted share were $1.12 compared with adjusted earnings per diluted share of $0.40 in 2018. Net sales were in line with the prior year at $4,500,000,000 with unfavorable exchange rates negatively impacting net sales by $43,000,000 Adjusted gross profit increased to $312,000,000 compared with $280,000,000 in 2018. Adjusted operating income for the year was $113,000,000 compared with $82,000,000 in the prior year.

And adjusted net income increased to $55,000,000 from $20,000,000 in 2018. For the full year 2019, net sales in our fresh and value added business segment increased by $50,000,000 to $3,000,000,000 compared to the prior year, primarily as a result of higher net sales in our fresh cut, avocado and vegetable product lines. Our gross profit increased $5,000,000 to $195,000,000 and gross profit was negatively impacted by the Mann Packing's voluntary product recall. For the full year 2019, net sales in our Banana business segment decreased $47,000,000 due to lower net sales in North America, Asia and Europe, while gross profit increased $30,000,000 as a result of higher selling prices in Europe and Asia. For the fourth quarter of twenty nineteen, adjusted loss per diluted share was in line with the 2018 at $0.45 Net sales were in line with the prior year period at $1,000,000,000 with unfavorable exchange rates negatively impacting net sales by $4,000,000 Adjusted gross profit was $47,000,000 compared with adjusted gross profit of $42,000,000 in the fourth quarter of twenty eighteen.

Adjusted operating loss for the quarter was $6,000,000 compared with an adjusted operating loss of $8,000,000 in the prior year. And adjusted net loss for the quarter was $21,000,000 compared with an adjusted net loss of $22,000,000 in the fourth quarter of twenty eighteen. In our fresh and value added business segment for the fourth quarter of twenty nineteen, net sales were $597,000,000 compared with $618,000,000 in the prior year period. And gross profit decreased to $21,000,000 compared with $45,000,000 in the fourth quarter of twenty eighteen. The decrease in net sales and gross profit was primarily the result of Mann Packing's voluntary product recall.

In our pineapple category, net sales were $115,000,000 compared to $116,000,000 in the prior year period, primarily due to lower sales volume and selling prices in Europe and lower selling prices in Asia. Overall volume was 2% lower, unit price was 2% higher and unit cost was 6% higher than the prior year period. In our fresh cut fruit category, net sales were 116,000,000 compared with $113,000,000 in the prior year period, primarily due to increased demand in North America, Europe and Asia. Overall volume was 2% higher, unit pricing was in line with the prior year and unit cost was 1% higher than the fourth quarter of twenty eighteen. In our fresh cut vegetable category, net sales were $96,000,000 compared with $120,000,000 in the fourth quarter of twenty eighteen.

The decrease was primarily due to lower sales volume as a result of Mann Packing's voluntary product recall. Volume was 21% lower, unit pricing was 1% higher and unit cost was 19% higher than the prior year period. In our avocado category, net sales increased to $65,000,000 compared with $65,000,000 in the fourth quarter of twenty eighteen, supported by higher sales volume as a result of increased customer demand. Volume increased 8%, pricing was 2% lower and unit cost was 8% higher than the prior year period. With the opening of our new packing facility and changes in how we procure avocados, we believe we will see reduced costs and improvements in margins in this product line.

In our vegetables category, net sales decreased to $47,000,000 compared with the $49,000,000 in the fourth quarter of twenty eighteen, primarily due to lower sales volume and selling prices as a result of Mann Packing's voluntary product recall. Volume decreased 4%, unit pricing decreased 2% and unit cost was 1% higher. In our non tropical category, which includes our grape, berry, apple, citrus, pear, peach, plum, nectarine, cherry and kiwi product lines, net sales increased to $33,000,000 compared with $29,000,000 in the fourth quarter of twenty eighteen. Volume increased 1%, unit price increased 11% and unit cost was 2% higher. In our prepared food category, which includes our traditional canned products and meals and snacks product lines, net sales for the fourth quarter decreased 1% compared with the fourth quarter of twenty eighteen.

The decrease was primarily due to lower sales in our Meals and Snacks product line, partially offset by higher sales in our Canned Pineapple product line. In our Banana business segment, net sales were $399,000,000 compared with $395,000,000 in the fourth quarter of twenty eighteen, primarily due to higher sales volume in The Middle East and higher selling prices in Europe, partially offset by lower sales volume in North America and Asia. Overall, volume was 1% lower than last year's fourth quarter. Worldwide pricing increased 2% over the prior year period. Total worldwide banana unit cost was 2% lower and gross profit increased to $13,000,000 compared with a loss of $2,000,000 in the fourth quarter of twenty eighteen, reflecting a 3.7 percentage point increase in gross profit margin.

Now moving to selected financial data. On selling, general and administrative expenses, during the quarter, they represented $49,000,000 compared with $47,000,000 in the fourth quarter of twenty eighteen. The foreign currency impact at the gross profit level for the full year was unfavorable by $15,000,000 and the foreign currency impact at the gross profit level for the fourth quarter was unfavorable by $5,000,000 Interest expense net for the fourth quarter was $5,000,000 compared with 7,000,000 in the 2018 due to lower debt levels as well as lower interest rates. Income tax expense was $1,000,000 during the quarter compared with income tax expense of $3,000,000 in the prior year. Regarding cash from operating activities at the end of the quarter, our net cash provided was $169,000,000 compared with net cash provided by operating activities of $247,000,000 in the same period of 2018.

The decrease was primarily due to lower accounts payable and accrued expenses, partially offset by higher net income. Our total debt decreased from $662,000,000 at the 2018 to $587,000,000 at the end of twenty nineteen. As it relates to capital spending, we invested $122,000,000 in 2019 compared with $151,000,000 in the same period in 2018. As announced this morning in our financial results press release, our Board of Directors declared a cash dividend of $0.10 per share payable on 03/27/2020 to shareholders of record on 03/04/2020. Just a correction in our avocado category, net sales increased to $69,000,000 compared with $65,000,000 in the fourth quarter of twenty eighteen.

This concludes our financial review. We can now turn the call over to Q and A.

Speaker 0

Your first question comes from Jonathan Feeney from Consumer Edge. Your line is open.

Speaker 4

Good morning and thanks very much. Couple of questions I had please. First, it seems that in some ways this quarter was in the fresh cut value added products, every single major product segment had unit costs outperformed pricing. And I know it's a seasonal business and you grow fruit, you contract for fruit, you got to move it at the price that it clears. But it just seems awfully coincidental that you saw margin apparent gross margin pressure in every single major segment.

I think there was one in there non tropical where you didn't. Was there some spillover effect from the recall into other segments of product where you had to give back on pricing because people are unhappy with the recall? That'd be my first question.

Speaker 3

Thank you for the question, Jonathan. No, those were completely separate effects. When I look to our pineapple as well as our fresh cut fruits, that was impacted by the specific higher cost that we faced from our production in Costa Rica. So while when you look to fresh cut vegetables, vegetables and meals and snacks that's completely related to the voluntary recall that we announced. So no impact related to customers as it relates to your question.

Speaker 4

And I guess following up on that is, was there any strategy involved in maintaining those volumes? Like I mean intra quarter, you had you saw that I mean, was it an idea to maintain service levels at certain retailers to take a hit on the gross margin a little bit? Or was it just purely that costs came in, in your own production ahead of what you expected?

Speaker 2

Jonathan, how are you doing? The cost that you saw there was derived from actually increase of cost. It's because of the volumes in Costa Rica, for instance, for pineapple did not meet the required demand and we had to incur additional cost to satisfy our customers.

Speaker 4

Got you. Number two Okay. That's perfectly clear.

Speaker 2

That's the reason for that. Our cost in pineapple has increased at the end of the year, which really reflected on the cost of the fresh cut at the other end and that was the reason and we're working to correct that.

Speaker 3

Okay.

Speaker 4

So my second question is then on bananas. I mean a better I know counter seasonal small does this quarter tell us anything about an improving environment going into high season here? Or is the fourth quarter really just not all that meaningful given how it's all it's a down quarter for everybody?

Speaker 2

No. As we go forward, the banana prices has improved over the last year. In Europe in particular, as well as in The U. S, the prices have improved in a contract basis, but that is not going to be translated immediately as we go into the year, I think that within the next couple of months, we would see the improvements as well as the increase the bunker clauses. We have to add the cost of the new fuel that we are using our ships, which will reflect also on higher pricing as far as Bananas is concerned going forward.

So these will be reflected as we go down through the year. However, I would like to emphasize that our business is shifting away I'm not saying shifting away completely, but shifting away a lot from just depending on the core products. We have a lot of initiatives right now as we speak that would take this in a completely different direction than what we see today. Have taken some steps and initiatives, some we can talk about, some we cannot talk, but there are so many initiatives in process that will translate in a different business model as we go forward.

Speaker 4

Yes. That much is clear for sure, but just wanted to understand what was going on in that particularly. But just following up on that insight, Mohamed, do you is it fair to say then I mean, we've talked about you migrating We've talked about different initiatives you've had and you've had some a lot of success doing that. Will you be actively trying to reduce your banana volume going forward and maybe just do business with the most profitable customers or customers where you feel like you have to stay in the banana business, but the emphasis as the emphasis moves away, does that look like you actively reducing your banana business globally aiming to do that?

Speaker 2

No, no, no. That's not the case. That banana business volume will stay as this is our, like, core item. However, what we I mean, like, for instance, we just introduced a few weeks ago, the rose pineapple. You know, this is our patented new pineapple, which is coming in a very small volume into the market, into New York market actually for certain customers.

Speaker 4

Lucky me. I'm sorry? I said lucky me. You'll have to tell me where. But Well We can follow-up we can follow-up on

Speaker 2

that later. Only offers, I think, in, you know, in cocktails and in in very certain restaurants and bars. But just to give you an idea, I mean, this is an item that we will ramp up not now, but we will have small volumes during 2020, but in 2021, 2022, then volumes start climbing up. But just to give you an idea, I mean, we're talking about 20% on margins on the gold, are talking here about I don't want to say the number, but several folds.

Speaker 3

Independently higher.

Speaker 2

Several folds more than the so we have a lot of stars that will come out in the next few months, in the next couple of years that will completely change the business. We are starting our F and B shop in Coral Gables in Miami by April and that is completely different approach to the business. And this we have already 20 shops in many regions, which are successful. We are starting our first shop now in The U. S.

In Coral Gables by end of next month. And we have very big hopes, I mean, not hopes, but we are confident that this will become a completely different approach to the business as far as fresh air multi is concerned.

Speaker 4

That's great. That's very helpful. Thank you so much, Mohammad. I'll immediately begin searching high end cocktail bars in New York for

Speaker 2

these brands. We send a couple.

Speaker 4

Thank you so much. Appreciate your time.

Speaker 2

My pleasure.

Speaker 0

Your next question comes from Mitch Pinheiro from Sturtevant and Company. Your line is open.

Speaker 5

Good morning.

Speaker 2

Good morning, Mitch. Good morning, Mitch.

Speaker 5

So a couple of questions here. So first on the recall, could you just go over the numbers for me exactly what it cost you in the various buckets on the revenue side and what it cost you on the buckets on the cost side?

Speaker 3

Yes. So thank you for the question, Mitch. So when I look overall, we had lower sales related to the recall. And aside from that, we had claims that impacted that. So the impact of lower sales when you think from a gross profit margin there, lower sales as compared to the previous year, we were talking about $27,000,000 That was significant.

And we need to take into consideration that in Q4 twenty eighteen, as you may remember, there was a recall on other products that we were not impacted on lettuce. And we took opportunity of that and we saw higher sales of our products in Q4 twenty eighteen. So we didn't see that in 2019 and also we saw lower sales impacting there. So

Speaker 5

you're saying '27 so you're estimating that you've had lost sales of about $27,000,000

Speaker 3

Yes, exactly.

Speaker 5

Okay. And then on gross profit?

Speaker 3

Yes. So in the gross profit level as we compare to last year, we had several specific impacts. So we had about $7,000,000 related to lower sales, but also we had an additional $10,400,000 that you see as onetime events on claims and other charges that we recognize at the gross profit level. And below that we had zero $5,000,000 impairment. So those are reflected in the footnotes of the press release when we compare our GAAP results versus our adjusted results.

Speaker 5

Okay. I'm just okay. So the one thing I'm a little mystified that a hit to this extent wouldn't have been called out in a press release. Maybe I know you wouldn't know the exact extent, but just to say that there was a voluntary recall of some Mann products Yes, that's sounds like $27,000,000 That sounds like $2,000,000

Speaker 3

No. So if you look to the footnotes there, you're going to see that in the footnotes when we do the ongoing versus adjusted results, we're talking about the onetime event that we had of $11,000,000 But we clarify also when we talk about the specific segments about the significant impact that we had in the fourth quarter on the specific fresh cut vegetables, a significant impact on volume as well as higher cost. And the higher cost is mainly because we had lower volumes and also the same you were able to see in the vegetables piece as well. And so those are reflected there.

Speaker 2

Mitch, let me just add to this. You know that we have been we are insured, so we haven't yet received our claim from the insurance. I mean that loss that you see and we have announced, most of it will be recovered. Well, there's two points.

Speaker 5

I mean, you're insured, but also how does that affect customer relationships? I mean, when I've seen recalls in the past, there's grocery stores without product that are losing gross margin. And the buyers in these categories are never particularly happy when their gross margins are getting hit and their bonuses are in jeopardy. And sometimes the relationship is at you know, there's an issue with the relationship between the buyer and and and, you know, you you guys that could last a year or more until how does that how does that stand?

Speaker 2

No, it's not as bad as you think. You did definitely. We have worked with our customers on a very open, transparent way. And some customers have to stop taking the product until the all the issues were rectified in the plant. And they some of them came back and already restarted again receiving the products.

Some are still in the pipeline, but it's not really the major we I don't believe that this has been a major hit in that respect. To add to this, I mean, the whole problem is with this facility that we when we acquired the company, this facility was an existent and had a lot of issues regarding sanitary and hygiene. So in the meantime, we were constructing the brand new state of the art facility, which is called Gonzales in Gonzales City, about 30 miles away from Salinas. And we are shifting we are moving that in the next few months as we speak. We are shifting all our production now to our new facility, which will completely change the business in a much different way in terms of quality, in terms of delivery, in terms of pricing, cost, you name it.

I mean, we are very, very confident about the future for man and the vegetable business in particular going forward into 2020. So this was a onetime event. This will be recovered, most of it, by the insurance. Our relationship with the customers is solid and we are you know, we have addressed it in a very efficient and professional way. So I'm not really worried about going forward in the future.

All about control.

Speaker 5

And how about but just how about the point where an event such as this is a meaningful event. I'm surprised that it wouldn't be you wouldn't have put out a press release indicating to investors that this is a bigger event than just a couple of million dollar recall. This was a $27,000,000 hit. I don't know what the I didn't do the gross margin hit, but it's a big number. And I'm surprised you would leave it till February 19 to give us the numbers.

Can you talk about that a little bit?

Speaker 3

Me correct one comment there. So on 11/03/2019, we came out with a press release and we announced the recall. We came and announced all the products that were impacted by that. And I think perhaps because the recall was related to Mann Packing, perhaps that may be overseen by some investors and analysts, but we came out proactively and that's the important piece. This was a voluntary recall that we did and we communicated all of our customers and we communicated the media about that impact.

Speaker 5

Well, would disagree. I think that what I've seen in the news, on November 4, a Dow Jones story picked it up. But I would think and it said that it was a voluntary recall on quote unquote some products. Some sounds like a little bit, not $27,000,000 And number two, if you know that it's going out via Mann Packing's website and their communication network, but you guys are a public company, I think that ought to have been at least, brought an investor awareness, not just to the grocery store customers. And so I'm just saying that I wish I would have seen this and had known that it was more than just a couple million dollar hit.

And so that's that. Question is on bananas. What was your carton growth in the fourth quarter? I didn't was it one percent?

Speaker 3

What do you mean? So the increase

Speaker 5

For volume, however

Speaker 3

Sorry, I didn't understand your question.

Speaker 5

What was the volume in the quarter? Bananas? Yes.

Speaker 3

Yes. In Bananas, our overall volume was 1% lower compared to the last year's fourth quarter. Okay. But our as you can see, our we increased prices and our gross profit increased by $11,000,000 as compared to last year.

Speaker 4

Was a good I'm gross sorry? It's a good gross margin.

Speaker 5

It looked like your it looked like I mean, in Europe was really strong, and it looks like it remains elevated. Did that have the impact on volume or because of pricing? Or you didn't have enough supply there? Or what would cause the volume decline in the quarter? It's a modest decline.

Speaker 3

Yeah. So again, this year we focused a lot on value versus volume in that sense. So we have some impacts on volume in Asia as compared to what we had before and a little bit in North America. But the prices that we had more than offset them because also the actions that we took in terms of reducing our cost that helped us expand the margin and had that almost four points differential that I mentioned about. Okay.

Then one thing to clarify. So at the time that we announced the recall, we didn't have the idea of the extent of that because we had to wait until the clearance from the FDA and then understand all that impact. And we came to that more closely during early twenty twenty. And so that's why we decided to communicate that at this time.

Speaker 5

Okay. Well, I would think that it would have been appropriate to communicate it a lot earlier than today, especially given, you know, it's a meaningful number. But that's okay. That's I I I understand where you're coming from. The the last question I had was with regard to, Mohamed, your I guess your coronavirus

Speaker 4

comments. Yes.

Speaker 5

So are you saying that they're not accepting bananas in certain Asian ports and therefore that supply has got to get diverted and therefore there'll be some oversupply in other markets that would cause maybe some pricing pressure? Is that one takeaway?

Speaker 2

Yes. Actually, let's make it very clear. The ports in China, most of the ports in China have stopped operations because of the coronavirus. And the goods were stacked up in the ports. I can tell you, for instance, in when the coronavirus was announced and the ports stopped, you know, and then it just happened during the Chinese New Year, which was a long holiday.

So it really made the problem more compounded that there was a holiday and then the coronavirus immediately hit in. So they extended the holidays and the ports were not working. The tracking almost was coming to a halt. So what happened is that, for instance, for argument for example, the Chilean cherry season, they have like 1,500 containers sitting in the ports in China and they couldn't clear them. Some of it's still sitting until today.

Now fortunately, as company ourselves, we are not so much involved in China in this respect. Our main business is in Hong Kong and we sell to China on a C and F basis. We don't have presence in China itself. So we are not hit in China as such, but what we are worried about is that the spillover, if goods cannot go into the Chinese market that they might have that might be diverted to the nearby markets, be it in Japan, Korea or even in MENA. And we are watching this situation carefully.

Hopefully, the Chinese market will open up soon. I mean, that let me emphasize here that the Chinese market is not closed 100%, but definitely there are difficulties in getting the fruit and moving the fruit inside or the products inside China. So we will I believe that this problem with the coronavirus and I've been saying it, I don't believe that it's going to be away before April. And usually these viruses, they don't subside until the weather starts warming up and then we will see the situation getting improved.

Speaker 5

So okay, that's very helpful. Is that so for the first quarter here, in which areas might we see your operations affected? In the non tropical, where else do you what other product lines might you be affected in Q1?

Speaker 2

The banana in terms of in particular in Europe is a very strong market. The U. S. Is doing normal. Asia is the one that has really been impacted because of the coronavirus and the and as well MENA because the like ripple effect of the Chinese thing.

So, so far the two markets that have been impacted is really Asia, which is Japan and Korea as well as the banana market themselves. As far as bananas is concerned, pineapple is very strong market in Europe, in The States and other parts of the world. So this is the situation as we see.

Speaker 5

So mainly in your non it'd be in your non tropical business where you might see where you're moving things from either, as you said, cherries or other things into the Asia markets?

Speaker 2

No. As a matter of fact, with our deciduous going into Japan and Korea are doing quite well. We haven't our charities that went to China was earlier than the coronavirus, thanks God, and we were done before the coronavirus. Don't usually sell too much grapes. Our major markets are Japan and Korea.

And that's these markets on deciduous are doing very well.

Speaker 5

Okay. All right. That's all for me.

Speaker 3

And Mitch, just one thing to comment regarding Q1. As you may remember, last year we had a onetime event that was a gain on the litigation that we had that we do not expect that

Speaker 2

to

Speaker 3

happen this year. But at the same time, we're working very diligently as Mohammed mentioned about the insurance claims that we have. And we expect that to have a positive effect in Q1, not to the full extent, because some of the business interruption and the impacts related to loss of sales that usually takes longer in terms of all the analysis that insurance company takes place. But we do expect to see a positive effect from that in Q1.

Speaker 5

Okay. Thank you.

Speaker 0

Your next question comes from Richard Shuster from Boston Partners. Your line is open.

Speaker 6

Hey, guys. Just a little more clarification on the Mann incident. What was the EBITDA impact in the fourth quarter? And you said that it was a onetime event, but I missed the beginning of the call. Will there be any impact in 2020 from the recall?

Thanks a lot, guys.

Speaker 3

So thank you for the question, Richard. So in the non GAAP, we explained on the operating loss as we see sorry, income standpoint, we recognized about $10,900,000 almost $11,000,000 there. That is the key thing related to the one timer on the recall. And also we had on sales an additional 10,000,000 to 11,000,000 I would say, because the $27,000,000 that I mentioned was mainly on sales. But when you bring that to the gross profit, we're talking about $43,000,000 In 2020, we're talking we're taking several actions as Mohamed mentioned about shifting our operations into our new facility.

But there is also a curve of recovery and that on sales to our customers. And so we expect to see some improvement on sales that will take place in the first half of the year, but that's going to be more consolidated in the second half of twenty twenty.

Speaker 6

And just as a follow-up, how much do you think the insurance proceeds will be from the recovery?

Speaker 3

So I would say that we expect to be a significant amount. We don't share our insurance policies in that sense, but we expect that to be very representative related to the total impact that we saw.

Speaker 6

Got it. Thank you very much guys.

Speaker 3

Thank you. Thank you, Richard.

Speaker 0

Unfortunately, we are out of time for questions today. I would like to turn the call over to Mr. Abu Ghazali for closing remarks.

Speaker 2

I would like to thank everyone. I know that it has been a disappointing quarter for me and for everyone. But I am very confident about the future. And I hope that next call, we can share with you other good news. Thank you very much, and have a good day.

Speaker 0

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.