Fresh Del Monte Produce - Earnings Call - Q4 2020

Transcript

Speaker 0

Good day, everyone, and welcome to Fresh Del Monte Produce Fourth Quarter and Full Year twenty twenty Conference Call. Today's conference call is being broadcast live over the Internet and is also 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 the Vice President, Investor Relations with Fresh Del Monte Produce, Christine Canela.

Please go ahead, Ms. Canela.

Speaker 1

Thank you, Amy. Good morning, everyone, and thank you for joining our fourth quarter and full year twenty twenty conference call. As Amy mentioned, I am Christine Canela, Vice President, Investor Relations with Fresh Tamani Produce. Joining me in today's discussion are Mohammad Abu Ghazali, Chairman and Chief Executive Officer and Eduardo Bezera, 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 freshdelmonte.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 mentioned 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 law. 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. Good morning, everyone. As everyone on the call knows, 2020 came with unprecedented challenges. I am extremely proud of how our global team has responded and adapted to the ever changing conditions to continue to get our products to market, serve our communities with donations while taking the necessary precautions to keep our production environment safe for our team members. We made progress on many fronts in 2020, building a solid foundation for a strong future, which I will highlight in a However, I want to first mention the events that affected our quarter's performance.

The COVID-nineteen pandemic continued to impact Fresh Del Monte, especially in our largest market, North America, primarily as a result of ongoing disruption in the food service business. In November, hurricanes Eta and Ayopta took their toll on Guatemala, Honduras, and Nicaragua. Despite the devastation sustained on our farms and communities, we quickly engaged a global team to lend support and assistance to our team members and the surrounding hard hit communities. Thankfully, no lives were lost. As a result of the hurricane, a tight banana supply from these regions emerged.

In December, to meet the needs of our customers and deal with higher costs of food production and procurement, we declared force majeure and implemented a surcharge per box to our North American banana contract prices. This surcharge remains in place today. Collectively, these factors hampered our twenty twenty fourth quarter financial performance. Net sales were $1,000,000,000 in line with the fourth quarter of twenty nineteen. We reported adjusted gross profit of $49,000,000 compared with $48,000,000 in the fourth quarter of twenty nineteen, with gross profit margin improvements in our fresh and value added products segment.

We also reported adjusted loss per diluted share of $08 compared with adjusted loss of $0.45 in the fourth quarter of twenty nineteen. Now I would like to highlight a few of our accomplishments in 2020. During our third quarter twenty twenty conference call, we announced $100,000,000 asset sale optimization program to strengthen our balance sheet and free up cash flow. I am pleased to share with you that for 2020, primarily in the fourth quarter, we achieved 40% of our goal. We are on track to complete the most of the program in 02/2021.

Last year, at this time, I shared with you that we embarked on a five year plan to transform Fresh Del Monte. You may recall the key elements of our transformation were protect and grow the core business, drive innovation and expansion growth on value added growth categories evolve our culture to increase employee engagement and productivity become a technology driven company to drive efficiencies become a consumer driven company, and last but not least, sustainability, waste less for a better world tomorrow. Today, in the face of a year long pandemic, we are a different company than we were a year ago. In The US, we deputed our newest product, the Pink Globe Pineapple, a novel variety with a pink flesh. We recently announced a partnership with Queensland University of Technology in Australia to develop new varieties of disease resistant piranhas.

The research partnership will focus on utilizing breakthroughs in plant trait developments to cultivate bananas that are less susceptible to crop threatening diseases. We completed the move to our new Gonzales, California facility. Today, our three man packing facilities and Fresno fresh cut fruit facility are operating under one roof, which we anticipate will enable us to improve gross profit in our fresh and value added product segment by approximately $10,000,000 on an annual basis, a benefit which we expect to achieve in 2021.

Speaker 3

We opened a new state of

Speaker 2

the art distribution and fresh cut facility in Yokohama, Japan. We accelerated the one year anniversary of our new avocado packing facility in Mexico, which has further strengthened our competitive position. We continue to expand our global customer supply partnerships as they play important roles in the value added product diversification strategy for our distribution channels. We welcome four of our six new container vessels. In addition to the lower carbon footprint, our new ships enables us to offer a more convenient and competitive commercial cargo program to third party customers in trade lanes served by these new vessels.

We made capital investments in technology and automation to become a more efficient producer, implemented SAP in some of our facilities. We launched e commerce platforms in Dubai and Dallas, and we are focused on further expansion of our diversification strategy. We opened our first North America food and beverage store named Fresh Street in December in Coral Gables, bringing our products closer to our ultimate consumers. In October, we published an update to our twenty eighteen-twenty nineteen Corporate Social Responsibility Report, demonstrating our continuous commitment to deliver on sustainability and social responsibility objectives. This can be measured through numerous awards and accolades we received in 2020, such as the PR Daily Award from Green and Environmental Stewardship and numerous social responsibility awards for COVID nineteen pandemic relief, such as the Guatemala two thousand twenty President's Award for COVID nineteen support and the 20020 hunger relief champion to name just a few.

And our team members, our most important asset during the pandemic, they showed resilience, focus, and attention to details to continue to operate within the highest standards of quality and efficiency. They have my heartfelt respect and full appreciation. As we move forward in 02/2021, we will continue to advance our five year strategic transformation to deliver stronger long term shareholder value. We remain firmly committed to prudently growing the company, improving our operations efficiency, expanding in new geographies, developing innovative new value added products and adding more opportunities for direct to consumer engagements to respond to the shift in delivery channels driven by a trend towards stay at home economy. Thank you for joining us today, and I will turn the call to Eduardo to talk about financial results.

Eduardo, please.

Speaker 3

Thank you, Mohamed, and good morning. Despite the COVID nineteen disruptions during the full year and the impact of hurricanes Eta and Yota in our Central America operations in the fourth quarter of twenty twenty, we achieved a net income per diluted share of $1.03 versus net income per diluted share of $1.37 in the full year of 2019. Excluding among other things, the effect of other product related charges, which resulted in a $34,000,000 gross profit impact related to charges attributable to our fresh and value added and banana product segments, and the $22,000,000 gain on disposal of property, we delivered adjusted net income per diluted share of $1.15 compared with adjusted net income per diluted share of $1.12 for the full year 2019. Additionally, despite the headwinds of the COVID-nineteen pandemic and hurricane, we generated $181,000,000 in operating cash flow during the year. We reinvested $150,000,000 in capital projects, returned $35,000,000 to our shareholders through dividends and share buybacks and reduced our long term debt by $45,000,000 compared to the end of two thousand nineteen.

As Mohammed mentioned, we made excellent progress with our asset sale optimization program, completing 40 of the $100,000,000 objective in 2020. I'll now get into the results for the full for the fourth quarter and full year 2020. In regards to the product lines, I will update you on fourth quarter numbers. For the full year 2020, net sales were $4,200,000,000 compared with $4,500,000,000 in 2019, with unfavorable exchange rate negatively impacting net sales by $16,000,000. The COVID nineteen pandemic impacted net sales during the year by an estimated $304,000,000.

Partially offsetting the decrease in overall net sales was our fiscal year cycle, which consisted of a fifty three week year for fiscal twenty twenty as compared to a fifty two week year for fiscal twenty nineteen, resulting in an estimated $72,000,000 increase in net sales. Adjusted gross profit was $284,000,000 compared with $318,000,000 in 2019. However, I would like to point out that if you apply the adjusted gross profit margin of 6.5% to the $3.00 $4,000,000 of net sales impacted by COVID nineteen, we estimate that we would have delivered an additional $21,000,000 in adjusted gross profit. Adjusted operating income for the year was $89,000,000 compared with a $113,000,000 in the prior year, and adjusted net income was $55,000,000 in line with the prior year period in 02/2019. For the full year 2020, net sales in our fresh and value added business segment decreased by $220,000,000 to $2,500,000,000 compared to the prior year, primarily as a result of lower net sales in our fresh cut vegetables, fresh cut fruits, avocados, vegetables, melons, prepared food products, and tomato product lines, partially offset by higher net sales in our non tropical fruit and pineapple product line.

As compared with our full year 2019 performance for this segment, the COVID nineteen pandemic affected our net sales of fresh and value added products by an estimated $243,000,000 during the year, driven by reduced demand in our food service channel and shifting demand at retail due to the pandemic. Also, the continued effect of the November 2019 manufacturing voluntary product recall affected our net sales in the full year of 2020. Our gross profit decreased $35,000,000 to a $158,000,000. Other product related charges represented $25,000,000 for the segment, primarily related to inventory write offs of pineapples and fresh cut vegetables as a result of volatile supply and demand conditions, as well as additional cleaning and social distancing protocols associated with the pandemic, along with the inventory write offs resulting from damages to our melon operations in Guatemala due to Hurricane Zeta and Yonta in the fourth quarter of twenty twenty. For the full year, net sales in our banana business segment decreased by $53,000,000 to $1,600,000,000 compared to the prior year.

As a result of lower net sales in North America and Europe, partially offset by higher net sales in The Middle East and Asia. As compared with our full year 2019 performance for the segment, the COVID nineteen pandemic affected our net sales of bananas by an estimated $60,000,000. Gross profit decreased $20,000,000 to 84,000,000, primarily due to lower selling prices and sales volume. Other product related charges represented $8,000,000 for the segment primarily related to inventory write off as a result of damages to our banana operations in Guatemala due to Hurricane Zeta Neopa during the fourth quarter of twenty twenty, along with the volatile supply and demand conditions caused by COVID nineteen pandemic, as well as incremental cost incurred for cleaning and social distancing protocols associated with the pandemic. The company collected approximately $3,000,000 in insurance recoveries associated with the storm, which is included in other product related charges.

For the fourth quarter of twenty twenty, adjusted loss per diluted share was 8¢ a share compared with adjusted loss of 45¢ a share in the fourth quarter of twenty nineteen. Net increased by $23,000,000 to 1,000,000,000 in comparison to the prior year period in 2019 with unfavorable exchange rate negatively affecting net sales by $2,000,000. The COVID nineteen pandemic impacted net sales during the quarter by an estimated $71,000,000 as compared with our 2019 performance. Partially offsetting the decrease in net sales for the 2020 was an additional week in November 2020. So when compared fourteen weeks versus our regular thirteen weeks of sales, we estimate an increase in fourth quarter twenty twenty net sales of $72,000,000.

Adjusted gross profit was $49,000,000 compared with adjusted gross profit of $48,000,000 in the fourth quarter of twenty nineteen. However, I would like to point out that if you apply the adjusted gross profit margin of 3.9% to the $71,000,000 of net sales impacted by COVID-nineteen, we estimate that we would have delivered an additional $3,000,000 in adjusted gross profit. Adjusted operating loss for the quarter was $5,000,000 compared with an adjusted operating loss of $6,000,000 in the prior year. And adjusted net loss for the quarter was $4,000,000 compared with an adjusted net loss of $21,000,000 in the fourth quarter of twenty nineteen. In our fashion value added business segment for the fourth quarter of twenty twenty, net sales were $586,000,000 compared with $597,000,000 in the prior year period, primarily attributable to lower sales volume in our melon, vegetables, fresh cut fruit, and prepared food product lines, partially offset by higher net sales in our pineapple, fresh cut vegetables, and nontropical fruit lines.

We have estimated that the COVID nineteen pandemic impacted net sales in the fresh and value added product segments during the 2020 by an estimated $49,000,000 as compared with the 2019 performance. The estimated impact on net in net sales is attributable to reduced demand in the company's food service business and shifting demand at retail as a result of continued government imposed mandatory restrictions and social distancing initiatives associated with the pandemic. Partially offsetting the decrease in overall net sales was the impact of an additional week in the fourth quarter of twenty twenty, which contributed an estimated $42,000,000 increase in net sales. Gross profit increased to $25,000,000 compared with $21,000,000 in the fourth quarter of two thousand nineteen. Other product related charges represented $6,800,000 for the segment, primarily related to inventory write offs of pineapples, fresh vegetables due to volatile supply and demand conditions caused by the COVID nineteen pandemic, as well as $4,400,000 in inventory write offs resulting from damages to our metal operations in Guatemala due to hurricanes Eta and Yonca.

In our pineapple category, net sales were a $127,000,000 compared to a $115,000,000 in the prior year period, primarily due to higher sales volume and selling prices in Asia, Europe, and Middle East. Overall, volume increased 9%, unit price increased 1%, and unit cost increased 1%. In our fresh cut fruit category, net sales were a $110,000,000 compared with a $116,000,000 in the prior year period, primarily due to decreased demand in North America and The Middle East as a result of the continued impact of COVID nineteen pandemic and the shortage of raw materials. The decrease was partially offset by higher net sales in Europe and Asia. Overall volume decreased to 6%, unit pricing increased to 1%, and unit cost increased to 5%.

In our fresh cut vegetable category, net sales were $99,000,000 compared with $96,000,000 in the fourth quarter of two thousand nineteen. The increase was primarily due to higher selling prices in North America. Volume decreased 3%, unit price increased to 6%, and unit cost decreased 2%. In our avocado category, net sales were $69,000,000 in line with the fourth quarter of two thousand nineteen, supported by higher sales volume as a result of increased customer demand. Volume increased 22%, pricing decreased 19%, and unit cost decreased 22%.

Our Mexico packing facility and changes in how we procure avocados continue to drive lower cost and improvement in margins in this product line. In our vegetables category, net sales were $40,000,000 compared with $47,000,000 in the fourth quarter of twenty nineteen, primarily due to lower sales volume as a result of the continued impact of the COVID nineteen pandemic, partially offset by higher selling prices. Volume decreased 17%, unit pricing increased 2%, and unit cost increased 16%. In our non tropical category, which includes our grape, berry, apple, citrus, pear, peach, plant, nectarine, cherry and kiwi product lines, net sales increased to $35,000,000 compared with $33,000,000 in the fourth quarter of twenty nineteen. Volume increased 11%, unit pricing decreased 5%, and unit cost increased 8%.

In our prepared food category, which includes our traditional canned products and meals and snacks product line, net sales for the fourth quarter decreased 5% compared with the fourth quarter of twenty nineteen. The decrease was primarily due to lower sales in our news and snacks product line due to the impact of the COVID nineteen pandemic, the continued impact of the 2019 product recall and product rationalization efforts in our manufacturing operations in North America, which resulted in the discontinuance of lower margin products. The decrease was partially offset by increased per unit sales prices of canned pineapple products, higher per unit sales of canned non tropical fruit due to improved customer demand, and higher per unit selling prices of pineapple concentrate products due to lower industry supply. In our banana business segment, net sales were $384,000,000 compared with $399,000,000 in the fourth quarter of twenty nineteen, primarily due to lower sales volume and selling prices in Europe, partially offset by higher net sales in North America and Asia. We have estimated that the COVID-nineteen pandemic impacted net sales in the banana segment during the fourth quarter by an estimated $22,000,000 as compared with the 2019 performance for the segment.

The estimated impact in net sales attributable to reduce demand in the company's full service business and shifting demand at retail as a result of continued government imposed mandatory restrictions and social distancing initiatives associated with the pandemic. Partially offsetting the decrease in overall net sales was the impact of an additional week in the fourth quarter of twenty twenty, which contributed an estimated $28,000,000 increase in net sales. Overall volume decreased 3% compared with last year's fourth quarter. Worldwide pricing decreased 1% over the prior year period. Worldwide banana unit cost was in line with the prior year period, and gross profit was $10,000,000 compared to $14,000,000 in the fourth quarter of twenty nineteen.

Other product related charges represented 6,000,000 for the segment, primarily related to inventory write offs as a result of damages to our banana operations in Guatemala due to hurricanes during the fourth quarter. We have collected approximately $3,000,000 in insurance recoveries associated with the storm. Now moving to selected financial data. Selling, general and administrative expenses were a $196,000,000 for the full year, 5,000,000 lower than 2019 due to several contingency measures applied in 2020, including travel restrictions due to COVID nineteen impact. During the quarter, selling, general and administrative expenses were $54,000,000 compared with $51,000,000 in the fourth quarter of twenty nineteen.

The foreign currency impact at the gross profit level for the full year was unfavorable by $11,000,000 with the same impact that the gross profit level for the fourth quarter was unfavorable by $900,000 For the full year, interest expense decreased $4,000,000 to $21,000,000 compared with $25,000,000 in the fourth quarter of twenty nineteen. Interest expense net for the fourth quarter was $5,000,000 in line with the fourth quarter of twenty nineteen. During the fourth quarter, income tax benefit was $4,000,000 during the quarter compared with income tax expense of $1,000,000 in the prior year, primarily due to reduced earnings in certain higher tax jurisdictions in conjunction with a benefit resulting from the restructuring of our European operations as well as benefit associated with the CARES Act in North America. For the full year, our net cash provided by operating activities was $181,000,000 compared with the net cash provided by operating activities of $169,000,000 in the same period of 2019. The increase in cash provided by operating activities in 2020 compared to 2019 was principally attributable to higher balances of accounts payable and accrued expenses and lower levels of inventory, principally due to our optimization efforts associated with improving working capital usage.

Partially offsetting this increase was lower net income in 2020 compared with 2019 and higher levels of prepaid expenses and non equivalent assets. Net cash used in investing activities was $109,000,000 for 2020 compared with $52,000,000 for 2019. Net cash used in investing activities for 2020 consisted of $150,000,000 in capital expenditures, partially offset by $40,000,000 in proceeds from sales of property, plant and equipment, while net cash used in investing activities for 2019 consisted of $122,000,000 in capital expenditures, partially offset by $69,000,000 in proceeds from sales of property, plant and equipment net. As this relates to capital spending, we invested $150,000,000 in 2020 with a significant portion related to the acquisition of four refrigerated container vessels. Our total debt decreased from $587,000,000 at the 2019 to $542,000,000 at the end of twenty twenty.

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 04/02/2021 to shareholders of record on 03/10/2021. This concludes our financial review. We can now turn the call over for Q and A.

Speaker 0

Your first question today comes from the line of Jonathan Bee with Consumer Edge. Please proceed with your question.

Speaker 4

Good morning and thank you. You itemized a number of headwinds. You had some uninsured losses from hurricane. You told us $21,000,000 in adjusted gross profit for COVID. And yes, maybe not a headwind, but a coming tailwind maybe.

You made some significant investments in streamlining your cost structure, particularly with the West Coast manpacking operations consolidation. So I'm trying to understand how much all of that affects 2021. Maybe if you could take those three line items in whatever detail you can be comfortable giving us. I know you gave us very helpful detail about what the impacts were for 'twenty. I'm trying to understand how much comes back in 'twenty one, just so I can understand if you annual run rate at a normal basis, where we're thinking about for modeling.

Thank you.

Speaker 3

Okay. Thank you, Jonathan. So let me give you some some color about that. Right? So we're talking about the impact on the partners that we do not expect that to happen in 2021.

Although, we may see impacting our our cost because we're gonna need to source from different, sources, you know, mainly Ecuador that has a not only a higher cost, but also from a logistics standpoint, on ocean freight that's gonna be higher. And from a capital standpoint, we're gonna need to rebuild a lot of the infrastructure that was damages, you know, in in those areas. So that's the first one. The second one, you know, so we did, as you mentioned, and and and we are very proud of all the different actions we took in 2020 to streamline our cost structure. So we took a lot of measures to improve our asset utilization.

And so we do expect that to to bring improvements. We anticipate and we share the $10,000,000 just by consolidating the operation of four different units at our new Gonzales unit there in Mann Packing. But, also, we do expect to recover the sales that were impacted in 2020, not only because of food service, but also because of the product recall. Of course, there that will happen throughout the year. Right?

Because some of the of this volume has been shifted to other suppliers, and it takes some time for you to recover that. But I we do expect that as a fixed significant contribution. And the third one, I would say that as we look into our operations in different geography, you know, we do expect by simplifying our cost structure to see an improvement as part of these overall optimization in Middle East, in Asia, as well as in our operations in CCAP and South America. So those are the three main areas that I would like to highlight there, Jonathan.

Speaker 4

So it sounds like

Speaker 3

I mean, the cap you mentioned capital expense,

Speaker 4

just so I'm super clear on that. That's not an earnings factor, right, for 20 you you just give me some capital expense for repairs, basically. That's not so much earnings. Then you talked about

Speaker 3

Yeah. That was mainly on on in the the hurricanes that we we had in in Guatemala. Let's keep in mind that we still have two vessels that we're gonna receive in 2021. So there'll be some capital associated with that as well. Yeah.

But we paid lower capital investments in 2021 as compared to 2020. But in terms of learning improvement, as I mentioned, the actions that we took in man packing as well as optimizing our business around the world, we do expect a reduction in our running rate of cost of doing business.

Speaker 4

So just just so I understood clearly, Waters, so $10,000,000 or so in that kind of savings. And if magically magically retroactive to January 1, there was no COVID and, oh, we went back to normal levels of behavior. Let's just say we're back to the kind of demand we had in, say, January, February 2020 across the world, all of a sudden, just hypothetically, where that that would be a 20 in your estimation, because you gave us a $21,000,000 number, that would also be a $21,000,000 tailwind your business, all things equal. Is that correct?

Speaker 3

Yeah. That's a that is correct. And that's tied to, you know, a $300,000,000 of net sales that we we had the impact. The challenge is always, you know, how long it's gonna take to really see Of course. Of course.

Speaker 2

Over the I would like to add I would like to add to this, Jonathan, is that, you know, the recall of of Mann was at the end of, 02/2019, which was about November, sometime in November 2019. And that was a big drawback for us going into 02/2020. And right after we came into 02/2020, we were hit with the COVID. So imagine, like a double warning, you know, you you have the recall in the first place, and then you got the COVID to make it even worse. So Of course.

All all the food service business almost gone, you know, overnight. And, and the only we were left with retail mainly. And and retail, of course, as because of the recall, we had so much business that was unfortunately, you know, stopped by the retailers. So we we gained some of this business during 02/2020, you know, in terms of retail business. We have we are seeing now some back, some life and activity in the food service.

It's coming back, not as much as we hope, but at least we see life coming back into the food service business. So we are very optimistic and really encouraged that hopefully by April, May that the the the normality comes back to to to the market in terms of food service and, opening up restaurants and hotels and and, you know, the, the whole sector. So we we we are very confident, you know, about, really, going into the future. I I have no doubt. And don't forget that moving four facilities into one during the COVID period with so many suppliers and so many new machines and so many technicians that they have to come.

It was like mission impossible, but thanks thanks to God and thanks to our people. Really, we have made unbelievable achievement by putting up everything. And as of as we speak today, it was completely achieved. And now, it's fully operational with with one unit rather than four different units. So you can see what would be the operational efficiencies and the by consolidating all this together.

I mean, it it will be significant.

Speaker 4

Thank you. That's that's that's really, really helpful. Just one more question for me. You're 40% of the way through your asset sale program. Are you happy with the prices you're getting?

I mean, we see the gains, so the accountants are happy. But are relative to what you understood to be the values here, are you happy with these values? Are they going up with the seems like the asset prices of everything else in the world right now? And how long do you think it will take you to be finished with that?

Speaker 2

I'll give you an example. Just to give you an example for instance. We have a piece of land that I bought in the eighty late eighties in Chile in North Of Chile, about 22 hectares that cost us about probably at the time when we bought that property was, like, $3,400,000, I remember. And we sold it, last, last year the end of last year, at a $12,000,000, price tag. So just to give you an idea of what kind of assets that we have and what kind of valuations we have.

I don't need to go with the rest, but, yes. Understand. Yep. There is

Speaker 3

a That got me an

Speaker 4

excellent flavor mode. And that type piece of land, by

Speaker 2

the way, was sitting either. We didn't we we didn't come to do anything. It was just sitting there, you know, and unutilized.

Speaker 4

Wow. Thank you. Well, it sounds like you are happy with it. I appreciate it. Thanks so much and great work, and we'll talk soon.

Speaker 2

Thank you, Jonathan.

Speaker 0

Your next question comes from the line of Mitch Pinero with I'm sorry, there is no company name. Please proceed with your question.

Speaker 5

Hi, there.

Speaker 2

Hi, Henry. Can you hear me?

Speaker 5

Hi. Yes. So just following up on John's last question. Is in terms of the asset sales, is it gonna be mostly I guess it's land. Correct?

Is that what you're selling?

Speaker 2

No. That's of it is land. Some of it are facilities that we we really are under either not utilized or underutilized to the point that it doesn't make sense to keep it. And we what we do is consolidate that business into another facility where we optimize and maximize the efficiencies. So it it is a mix of, land and facilities that, are underutilized or not utilized at all.

Speaker 5

Okay. I just wanna, look at the Banana business. So as we're looking here really short term, you still have force majeure in place, I guess, in The United States. And is you know? So are we gonna see are you able to fulfill volume at this point?

I mean, we're getting close to that. We're we're almost, you know, two thirds of the way down the first quarter. Are we gonna expect, like, a volume decline perhaps in the banana business in The United States or North America? And then how does that balance against the pricing you can get? And are we gonna see a normal gross margins, in North America?

Or anything you can talk about would be helpful.

Speaker 2

As far as bananas, I don't believe that the prices are going to move from where we are today. We are under so much pressure, you know, as a banana producer in terms of costs and procurement and as well as much as the damages we have been facing, you know, in in in our producing areas. As well as just as, you know, as as close I mean, as near last week, you know, I mean, we had so much disruptions in our operations in Texas and and and other areas in the Northeast Northeast because of the storms and the ice and the so that also added, you know that all adds to the additional cost and disruptions that we have, be it in bananas or other products. So I don't see any movement on the banana pricing going forward, you know, at least in the near term future or even in the midterm. That's as far as bananas.

As far as, you know, the other business, I I believe that as we go, you know, as we go forward in the year with with the vaccinations that taking place, with the decline in the rate of infections, you know, and so I I I'm very optimistic, and and I'm very hopeful that by hopefully, June, we can see a much more relaxed and much more kind of, back to normal life, in North America and then other parts of the world. You know? I mean, just to give you an idea, just, you know, we have been hit hard in in MENA, in The Middle East and Asia with bananas because the Iran market was closed for almost now two years. And that market used to import and consume huge amounts of bananas when I'm saying, you know, probably a couple of million boxes, a month or more. And, just recently, as as of last week, they decided to open the market again for banana imports, and that has already given a big push in prices in in that will relieve the pressure on Asia as well as Mana, with with volumes, which will be going to Iran.

And already, we saw the spot market in The Philippines shooting by at least $34 additional, you know, in in terms of pricing. So we're I'm I'm very confident and hopeful, you know, going forward. I I see the market changing. Yes. We have two years of very difficult environment in in in several fronts.

But as we go into '21, I'm I'm I'm really full of confidence about the future.

Speaker 5

And and and in Europe, you know, you've done better in Europe than I than I would have thought. Just watching the pricing stock pricing banana pricing in Europe, it's down it seemed down a lot. And and you look at your your business in the quarter and it, you know, held up very well. Is is are are you doing something differently in the European market as it relates to bananas?

Speaker 2

Yes. We are. As a matter of fact, the way that we sell our bananas, we have structural change in terms of having long term contracts rather than just depending on the spot market. So we are kind of mitigating the the the risks, which which helps us in in achieving better results and as well as sourcing from different locate you know, countries that can support with European market. So it's a it's a several factors, but I believe that going forward, as I said, for the other markets, Europe as well will be normalized and will be a lot more, you know, kind of consistent than than in the past.

Aside from that, Europe is also diversifying their product line, and they have done extremely well in introducing new new fruit lines, and and they're bit and they are really achieving very good results there as well. So all in all, Europe is doing quite well as well.

Speaker 5

And and then I'm not sure really, you know when we look at this, you know, reading about all the in Europe and wanting wanting to provide sort of requesting banana producers to have, you know, to to to have fair trade certified bananas. How does that you know, and then obviously not wanting to pay for that is is is sort of the issue. But how how do you guys think about, you know, fair trade pricing as it relates to your business, it relates as and as it relates to the broader market?

Speaker 2

Well, you know, everybody is affected in the same way. All the banana players, all the banana operators have the same issues and same challenges. You know, fair trade is a is a is a big, you know, kind of, word and very, very elastic in terms of how do what do you mean by fair trade. I mean, the fair trade, you know, retailers ask you for fair trade and all this. And then at the same time, when you come to negotiate with them, they want to strip you down and and and take it even below your cost.

That doesn't work. And that's something that we are refusing even to our biggest challenge in Europe right now is the MRL, which is a chemical that Europeans are going to prohibit by the end of this year. This is one of the and this chemical that we use, which is safe, you know, because we use it in other parts of the world, is something that will affect the quality of the bananas if we ship it into trips like the euro. So what is happening right now is the Banana Association here, I mean, is taking steps hopefully to be addressing this through the proper channels, you know, government channel. And this is really our challenge.

Other than that, you know, we we in our business, we always set challenges not daily, weekly, monthly, you know, and it's a continuing process. So we need to be ready to to meet these challenges and find solutions.

Speaker 5

K. Just just one last thing. Just and when I I don't know if you mentioned it, but what are your CapEx plans, for for 2021 and and and approximately what you intend to spend on?

Speaker 2

As Eduardo mentioned as Eduardo mentioned, the CapEx we have is is is very clear. We have two ships that we still have to pay the balance for the value, these two two ships. We have other projects that needs to continue. These were projects that started, a couple of years ago. And we have the maintenance and repairs, which is normal every single year.

So what we are going to do is really rationalize our capital expenditures to the best of our abilities and not investing in any new projects that will entail heavy investments with long term payback. That's the kind of policy that we are undertaking.

Speaker 5

And so probably what level of spending? Is it is it gonna be you know, you did 150,000,000 this year, 122,000,000 in the year prior. Where where do you expect it to fall this year relatively speaking?

Speaker 2

We we we do not we do not, you know, I know as far as we are concerned here, we that's the figure that, that they have already, you know, the units delivered to you at the beginning of the year. As we go forward in the year, we always fine tune this and prioritize as well and and try to only, approve the really what is really needed and what is really essential. So as we go forward, you know, I mean, by the second quarter, I would be able to give you a better picture how the year would change and how we would look. But, you know, we are we are on top of that, and, it's it's not like, like, open checkbook. Okay.

Thank you. Thank you.

Speaker 0

And there are no further questions at this time. I turn the call back to mister Abutizawa for closing remarks.

Speaker 2

I would like to thank everybody for joining us today. And, hopefully and and I'm confident for, next quarter to be a very bright, you know, for everybody, better days and happier days doubling, in the next few months. Thank you very much, and have a good day.

Speaker 0

And this concludes today's conference. Thank you for participating. You may now disconnect.