Dole PLC (DOLE) 2021 Q4 法說會逐字稿

Welcome, everybody, and thank you for joining our fourth quarter and full year 2021 conference call.

Joining me on the call today are Rory Byrne, Chief Executive Officer; Johan Linden, Chief Operating Officer; and Frank Davis, Chief Financial Officer. This conference call is being webcast live on our website and will be available for replay after this call.

During this call, we will be referring to presentation slides to supplement our remarks, and these are available on the Investor Relations section of the Dole plc website. Please note, our remarks today will include certain forward-looking statements within the provisions of the federal securities safe harbor laws. These reflect circumstances at the time they are made, and the company expressly disclaims any obligation to update or revise any forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied due to a wide range of factors, including those set forth in our SEC filings and news releases.

Our earnings release, financial report and related materials for the fourth quarter and full year can be found on our website at doleplc.com/investors. Information regarding the use of non-GAAP financial measures may also be found in the Notes section of the release, which also includes a reconciliation to the most comparable GAAP measures of adjusted EBITDA, adjusted net income, net debt and adjusted earnings per share. The details of our statutory forward-looking statements disclaimer can be found in our SEC filings and the presentation slides we will be discussing today.

With that, I'm pleased to turn today's call over to Rory.

Thank you, James, and thank you all for joining us today as we discuss our fourth quarter and full year 2021 results.

During this call, I'll give some color on the performance of the business over the course of 2021 and our outlook for 2022. Johan will give an update on operations, synergies and comment on some of the strategic initiatives being undertaken across the group. And finally, Frank will take you through the financial review.

Our 20-F document, which will be filed with the SEC in due course, contains reported financials for Dole plc, including the first full quarter of consolidated financial information. We will also reference reported numbers today, but our earnings press release and our investor presentation additionally include pro forma financial information, illustrating Dole plc's results as if the merger, IPO and refinancing had occurred on January 1, 2020. This is consistent with the pro forma financial information presented in the Form F-1 filed with the SEC in connection with the IPO.

As discussed on our first earnings call in December, 2021 was a transformational year for the group. Slide 6 illustrates the impact of the transition from Total Produce plc to Dole plc after the acquisition of the remaining 55% of Dole Food Company.

Revenue has more than doubled, increasing from $4.3 billion on a reported basis for 2020 to $9.3 billion on a pro forma basis for 2021. We are now the clear global leader in fresh produce at nearly 2x larger in terms of revenue than the next largest company in this category. There's also been a significant increase in adjusted EBITDA from $251.5 million on a reported basis for 2020 to $393.6 million on a pro forma basis for 2021.

Finally, our overall scale and global footprint has significantly increased with our total assets increasing 148% from $1.9 billion in 2020 to $4.7 billion in 2021. We now have a strategic asset base encompassing over 114,000 acres of owned land and other land holdings, over 160 distribution and manufacturing facilities, 75 packing houses, 12 cold storage facilities, 5 salad manufacturing plants and 13 vessels.

Back in July, we successfully completed the IPO of Dole plc and a refinancing and syndication of $1.44 billion of new credit facilities. The approximately $400 million of net proceeds raised from the IPO were all used to strengthen our balance sheet. And the refinancing has resulted in annual interest cost savings of over $40 million.

With a net leverage ratio of 2.87x, which is below our targeted level of 3, the group is well positioned to deliver long-term sustainable growth. Our focus is on the generation of substantial free cash flow to fund the further development of the group and to return value to our shareholders.

Turning to Slide 7. On a pro forma basis, the group delivered strong results for the full year, with revenue growth of 3.5% and adjusted EBITDA growth of 5.9%, in line with the guidance we outlined during our Q3 earnings call. The group results have generated double-digit growth in adjusted EPS, with adjusted EPS growing 11.8% from $1.33 per share to $1.49 per share. We are also pleased to announce today a dividend for the quarter of $0.08 per share.

2021 has been an exciting year for our group with plenty of positives but also a year of some complexity, with the impact of Hurricanes Eta and Iota on Honduras and Guatemala, supply chain pressure across the globe and the emergence of significant cost inflation and concluding with the product recall and temporary plant closures in our value-added salads business in December.

When set against this backdrop and the strong prior year, we are very pleased with how we have navigated these challenges and with the full year outcome. The diversity of our product and service offerings, wide geographic footprint and the strategic asset base allow us to more than offset these challenges and deliver strong full year performance and earnings growth.

We're also very fortunate to have a dedicated and resilient group of people within our company, and I would like to thank them all for their significant contribution efforts, especially when faced with the unique circumstances brought about by the COVID-19 pandemic over the last couple of years. Our team is very strong at responding to and overcoming challenges, and this is definitely borne out by our 2021 results.

Our industry has continued to grow, particularly within categories that Dole plc has an established leadership position, such as bananas, pineapples and value-added salads. We continue to focus our efforts on expanding our presence in the faster-growing categories, such as berries, avocados, exotics and organic produce. Each of these categories has expanded at a faster rate than the industry average over the last 3 years.

This industry growth is driven by the megatrend of health and wellness as well as the clear sustainability credentials provided by fresh produce. Consumers are increasingly focused on the physical and mental well-being. And they're shifting towards plant-based, vegetarian and vegan diets as a way to improve their health and reduce their own carbon footprint. We believe that these trends provide a solid foundation for our company to grow.

For the current financial year, our strategic priorities include managing pricing within a complex economic environment, delivering on our integration and synergy goals actively seeking out value-enhancing M&A opportunities and, of course, rebuilding profitability within the Fresh Vegetables segment.

I'll provide further color on these later in the presentation. But for now, I would like to pass you over to Johan to give the operational review.

Thanks, Rory, and good morning, everyone.

Turning to Slide 9. As discussed on our last call, engaging with our customers in 2021 to address rising inflation through negotiating price increases have been of critical strategic importance. In Fresh Fruits, we implemented price increases in North America in November 2021. And in Europe, we have seen price adjust since January.

While we feel good about delivering our strong results in Fresh Fruits in 2022, we are also closely monitoring the impact of the war in Ukraine on the industry. It remains too early to say what impact the war will have on our business, but we are closely monitoring the situation and are staying close to our suppliers and customers to navigate any issues that emerge. Our direct exposure is minimal. And we do not have any operations or facilities in Ukraine or Russia.

In Fresh Vegetables, after implementing a price increase in the summer, the value-added salads recall delayed our plan for second price adjustment, but we are now actively negotiating and expect price increases to be phased in quickly.

Our diversified business has more dynamic pricing because of the shorter season and constantly changing sourcing locations. Therefore, in 2021, while the operating environment was challenging, we were able to adapt to specific pressures that emerge and maintain our expected margins over the course of the year. We expect the diversified business to evolve in a similar way in 2022.

Moving to synergies. We continue to make good progress towards our short-term targets. We have seen some notable recent developments in the important berry and avocado categories, including an increase in collaboration between the businesses that previously operated independently and then some targeted investments that will support our growth plans.

In the banana category, we are continuing to see enhanced collaboration in Europe, with successes in our development of the French market and growth in our plantain business. Across the company, we are enhancing our growth -- our group collaboration, and I'm pleased that it is already providing benefits in what continues to be a complex global logistics market.

Turning to investments. 2021 was an important year for the group with several significant investments that we expect will underpin the business moving forward. As communicated in our last call, we took delivery last summer of 2 new vessels, Dole Aztec and Dole Maya, to service the U.S. Gulf region, and they are performing very well.

Our entire vessel fleet continues to be of enormous strategic importance for the business, providing critical insulation from the worst of the global supply chain challenges through our ability to manage our own cost and timetables and also due to the growth in our commercial cargo business, especially when global shipping capacity is constrained.

Moving to production. I'm very pleased to announce, at the end of 2021, we had completed the replanting of 2,900 acres of bananas in Honduras that were destroyed by the hurricane in Q4 2020, leaving only approximately 200 acres to be replanted in 2022 to complete our recovery program. The decision to reinvest quickly was not only critical for our large employee base in Honduras, but it's now starting to show benefits with a good recovery in yield and cost efficiencies starting to come through in early 2022. This is an important development to mitigate some of the other cost increases we have seen from inflation.

Turning to Slide 10. I will now give some more color on the value-added salad recall and plant suspensions. In December, we announced the voluntary recall for all packet salads processed at our Bessemer City and Yuma salad processing facilities and suspended operations at both facilities due to possible health risk from Listeria.

As the investigation evolved, we established the source of contamination was likely from outside of our processing plant and most likely from a single piece of harvest equipment that has become contaminated with Listeria from the natural environment. This resulted in the need to issue a second voluntary recall in January of salads containing products harvested with that equipment.

Genetic testing ultimately confirmed that the source was indeed the harvest equipment, but the time needed to complete that testing required us to implement the conservative return to operation plant that included test and hold procedures on finished products. This, in turn, resulted in operating at a lower capacity and significant disposals of finished goods into mid-February.

We are now back to operating at full capacity and are pleased that the investigation validated the leading industry's food safety practices within our plants.

We have taken additional steps in developing further protocols for the sanitation of harvest equipment and are pleased to be leading the industry forward again in these efforts. We have also used the lessons learned from our investigations to redefine and improve processes and protocols that will limit the future exposure of our plants to lengthy closures.

This additional litigation and remediation process resulted in additional costs that were not known in December. We expect exceptional onetime costs from the second phase to be approximately $15 million, reflecting the cost of disposal of affected inventory and packaging, reimbursement to customers, direct labor costs and additional cleaning and sanitation costs.

We also estimate a reduction in adjusted EBITDA in our full year 2022 numbers of approximately $25 million, arising from the impact of temporary loss volumes, fixed cost absorption and delay in initiating price increases needed to combat inflation. Looking ahead, we expect that the once-off cost and impact on the adjusted EBITDA to be behind us from the beginning of Q2, and we expect the underlying business to recover well.

Finally, we have been working with customers in late February in initiating price increases. We believe that the tight industry capacity, strong category growth and no current signs of consumer behavior being impacted by the recall event will allow us to recover the short-term volume loss from the recall.

With that, I will hand you over to Frank to give you the financial review.

Thank you, Johan.

As Rory mentioned at the outset, the financial information referred to today and as outlined in our press release includes results prepared on a pro forma basis, illustrating Dole plc's earnings as if the merger, IPO and refinancing had occurred on January 1, 2020. This methodology is consistent with the pro forma financial information presented in the Form F-1 filed with the SEC in connection with the IPO.

Turning to Slide 12. I would first like to comment on the transformational impact on Total Produce plc of the merger with Dole Food Company and the creation of Dole plc.

Because of the merger, Dole plc is significantly larger than legacy Total Produce in both scale and geographical footprint. Reported revenue has increased 48.5% to $6.5 billion for the full year 2021 compared to 2020 and increased 113.7% when comparing pro forma revenue for the full year 2021 of $9.3 billion to reported revenue of $4.3 billion for 2020.

Reported adjusted EBITDA has increased 15.3% to $290.1 million for the full year 2021 compared to that reported for 2020 and up 56.5% when comparing pro forma adjusted EBITDA for the full year 2020 of $393.6 million to reported adjusted EBITDA for 2020 of $251.5 million.

Total assets have materially increased by 147% to $4.7 billion following the merger. As Rory has mentioned, Dole plc delivered strong results for the full year 2021, with pro forma revenue up 3.5% to $9.3 billion when compared to pro forma revenue in 2020, with increases in all segments. Pro forma adjusted EBITDA increased 5.9% for full year 2021 to $393.6 million. Diversified Fresh Produce - EMEA and Fresh Fruits were the primary drivers of growth. The full year 2021 pro forma revenue and adjusted EBITDA were in line with guidance provided during our Q3 earnings call.

Now turning briefly to Slide 14. On a pro forma basis, adjusted net income was $141.2 million for full year 2021, which corresponds to 11.8% increase compared to full year 2020. This was primarily driven by the increase in pro forma adjusted EBITDA and pro forma reduction in pro forma effective tax rate. Because the results are prepared on a pro forma basis, this does not highlight the benefit of circa $40 million reduction in the annual interest expense achieved through the refinancing.

Looking at each of the segments in more detail and starting with Fresh Fruits. Throughout the year, we faced cost pressures from the supply chain impact caused by Hurricanes Eta and Iota in Honduras and Guatemala in November 2020 and from industry-wide inflationary pressures. However, having regard to those challenges, the division delivered a strong performance for the year with growth in revenue and adjusted EBITDA.

Fourth quarter pro forma revenue was up 6.9% versus the prior year, predominantly due to the higher banana prices in North America and continued growth in commercial cargo. For the full year, pro forma revenue increased 2.9% due to higher banana pricing in North America and higher pineapple pricing in North America and in Europe and the strong commercial cargo performance.

Fourth quarter 2021 pro forma adjusted EBITDA was down 10.3% year-on-year, with the reduction mainly experienced in Europe due to inflationary pressures that were not offset until pricing was reflected in the new contracts in 2022.

In North America, the price increases referred to earlier by Johan helped to offset input cost pressure as well as increases in transportation and handling costs. For the full year, pro forma adjusted EBITDA increased 21.6% largely due to higher revenue as outlined above.

Moving to Diversified Fresh Produce - EMEA. This segment had a strong performance in 2021. As called out on our Q3 earnings call, a reorganization of our Dutch businesses, recovery in food service channels and continued focus on superior service provision for our customers contribute to the strong growth.

Pro forma revenue increased 4.3% in the fourth quarter of 2021 and increased 5.4% for the full year. Fourth quarter pro forma adjusted EBITDA increased 1.9% and, on a full year basis, increased 24%, driven by recovery in our Dutch businesses, overall strong trading across the segment and the continued recovery in food service channels as European governments relaxed COVID-19 measures.

We also benefited from positive foreign currency translation during the fiscal year. However, we are currently forecasting some foreign currency translation headwinds for the forthcoming financial year following a weakening of European currencies versus the U.S. dollar.

Looking next at Diversified Fresh Produce - Americas and Rest of the World. Fourth quarter 2021 pro forma revenue was up 0.8% versus the prior year. Pro forma revenue for the full year was up 3.8%, primarily due to higher revenue from berries and more incrementally from growth in the South American export fruit business.

Pro forma adjusted EBITDA for the fourth quarter was up 42.6%, mainly due to a good start to the Peruvian grape and the Chilean cherry season. Adjusted EBITDA measured on the same basis for the year was down slightly by 1.4%, with the decrease largely due to the impact of adverse weather events on the Chilean grape season at the outset of the year as well as inflation and logistics pressures faced by some of our North American businesses.

This was offset in part by good underlying development in the business with continued growth in the berry category, in the Chilean cherry business, in kiwi together with a recovery in apples and pears after challenges in the prior year.

Finally, turning to Fresh Vegetables on Slide 18. This division has had a challenging year. In addition to the reasons outlined during our Q3 earnings call, this division was further impacted by a voluntary salad recall in December, as Johan has expanded upon.

This was the primary driver behind pro forma revenue decrease of 8.5% in the fourth quarter of 2021. For the full year, pro forma revenue increased 1% due to overall higher volumes and pricing in the value-added salad business, driven by strong market demand and a better mix of products sold. We incurred a loss in the fourth quarter due to the impact of the recall and on a full year basis due to the impact of weak packed vegetables markets, inflationary challenges and the December recall. As confirmed earlier, we are now operating again at full capacity and have taken steps to increase pricing, so we look forward to an improved performance through 2022.

Next, I will discuss our capital allocation and leverage. We successfully completed a refinancing and syndication of $1.44 billion of new credit facilities concurrent with our IPO in July of last year. This refinancing enabled us to materially lower our cost of capital and annual interest expense by repaying expensive debt within Dole Food Company. Our annual interest expense savings and incremental free cash flow following this refinance is in the order of $40 million. Our capital expenditure strategy is focused on investing where we see the greatest opportunity for profitable growth to support our existing strong market positions in core products.

Typically, we expect our capital expenditure to be in line with our annual depreciation expense of circa $120 million. This can vary depending on where we are in our reinvestment cycle and for certain larger capital assets such as vessels. In 2021, we had capital expenditure of approximately $190 million as we made a number of strategic investments, including the final payments on delivery of 2 new vessels.

In the fourth quarter, we continued our investments in Honduras as part of the rehabilitation programs following Hurricanes Eta and Iota and have now successfully replanted over 2,900 acres of banana farms.

We are pleased to announce today a cash dividend for the fourth quarter of 2021 of $0.08 per share, which we will pay on the 12th of April to shareholders of record on 29th of March 2022.

Finally, we continue to focus on maintaining leverage within our target level of 3x adjusted EBITDA. At the end of the fourth quarter, our net leverage ratio was 2.87x.

Now I'd like to hand you back to Rory who will provide more detail on our full year 2022 outlook.

Thank you, Frank.

Well, looking out to the full year, we are targeting revenue in the range of $9.6 billion to $9.9 billion. And as Johan has already explained, the impact from the value-added salads product recall has been significant, and we currently anticipate that this will have an approximately $25 million negative impact on our targeted adjusted EBITDA for 2022. Additionally, currencies, as Frank has already outlined, may cause some reduction on translation of euro earnings to U.S. dollars this year.

With the exception of our value-added salad business, underlying trading within all of our other businesses has been in line with our expectations for the start of this year. Taking all of these factors into account, our full year guidance for adjusted EBITDA is in the range of $370 million to $380 million.

In relation to the other financial metrics, we are targeting CapEx of approximately $125 million, which is in line with our annual depreciation charge. Additionally, we expect an annual interest expense of approximately $45 million, reflecting the full year reduction in interest of over $40 million as a result of the refinancing and an effective tax rate in the range of 25% to 28%.

Looking at the macroeconomic environment, the current conflict in Ukraine and the resulting sanctions in Russia were very unexpected. It's very difficult to accurately predict today what impact this may have on global trade flows, cost inflation and foreign exchange rates and to what extent this might impact our business. We are obviously very focused on all of these issues and will take whatever action necessary to minimize any potential impact.

Moving on to Slide 22. I'll finish by outlining our strategic priorities for 2022. Obviously, our key priority is clearly to rebuild profitability within the Fresh Vegetables segment and, in particular, our value-added salads business. The sector continues to show strong demand and tight industry capacity. And this, combined with the necessary price increases, gives us confidence that profitability will be restored during 2022.

We continue to concentrate on the integration of our businesses. Our management teams and people are continuing the process of working ever more closely together following the creation of Dole plc. This integration and collaboration is of high strategic importance, especially as we seek to deliver on the targeted synergies we set out at the time of the IPO.

Another pivotal element of our strategy is to focus on expanding our presence in faster-growing categories, such as berries, avocados and organic produce as well as bringing the Dole brand to new customers, particularly to new markets across Europe.

We also continue to actively seek out synergistic and value-enhancing M&A opportunities. The market is fragmented and growing, and we believe we are well positioned to capitalize on the opportunities that our industry may present. We will also finalize a new combined set of sustainability goals, framework and materiality assessment during '22 as well as publishing our first sustainability report for Dole plc.

In closing, we're very pleased with what the company has achieved during 2021. The merger with Dole Food Company, the creation of Dole plc, the listing on the New York Stock Exchange and the completion of a $1.44 billion refinancing. The group delivered strong financial results during 2021, and I would once again like to thank all our people for their significant contribution and dedication, without which none of this would have been achieved.

Before we open the call to questions, I would just like to note that earlier today, we announced an upcoming change in the management team here at Dole. Frank Davis has informed the he has decided to retire and step down from his position on the Board and as CFO from the 30th of June of this year.

Frank has been with the group since 1983, and I have had the great pleasure of working very closely with him for many years. He has been a big part of our success, and we'll definitely miss him. He has more than earned the right to a happy, healthy and enjoying the retirement. And we wish him the very best over the future -- in the future.

Jacinta Devine, our Company Secretary and the Finance Director of our Ireland and U.K. businesses, will take over as CFO and will join the Board when Frank retires. With her over 25 years of experience in the group, I have every confidence that this will be a seamless transition.

So with that in mind, I'll hand you back to the operator, and we can open the line for questions. Thank you.

(Operator Instructions) We take our first question from Adam Samuelson from Goldman Sachs.

So I guess my first question is to make sure I understand kind of how you're framing the '22 outlook. So it includes the $25 million headwind from the salads business. But what I wasn't clear on was kind of how you're framing kind of market uncertainty related to Russia, Ukraine.

So maybe can you help us just frame the inflationary kind of dynamics in terms of bunker fuel, in terms of fertilizer, logistics broadly, the FX that are assumed in the EBITDA guidance? And maybe just then think about kind of the things you're most closely watching that would further -- could further impact your outlook as we understand kind of how markets unfold.

Okay. I'll take that, Adam. It's Rory here. Yes, I mean we've taken our expected outcome for 2022. We've -- the $25 million known impact in the VA and pretty much the balance of it is down to the FX translation impact that Frank outlined, with the strengthening of the dollar against the European currencies. Relation to the other aspects in terms of inflation, as Johan outlined in his presentation, we have taken the necessary primarily pricing actions across the group to reflect that. There's a little bit further to come hopefully on the VA side with the delay in implementing some of the second price increases because of the Listeria recall.

With regard to the macro geopolitical situation, we have just highlighted that we are heading into unchartered territory here. It is very difficult to predict today what medium- or long-term impact that situation can have on trade flows, can have on cost inflation. Let's just say, we're seeing volatility around fuel. We may see a softening of the freight market with excess capacity now available because of the lack of trade flows into Russia, in particular. And then there's FX uncertainty in terms of particularly the translation and where the dollar might or might not go against the main European currencies.

So our forecast is based on the known information we've got today and we haven't built in any significant adjustment, but we have highlighted that there is an uncertainty around the macro geopolitical situation. So I don't know if that clarifies it, Adam, for you.

It's helpful. And maybe -- and I understand there's an offsetting kind of pricing impact that's both kind of direct and indirect. But can you help just frame, as we watch the external environment, how you think about your cost sensitivity to changes in fuel fertilizers, some of the key purchase raw materials that you actually have in your operations beyond just the produce that you buy from third parties?

Yes, I mean, fuel -- in our biggest markets, where the biggest impact on fuel is into the North American market, and we have variable clauses built into our contractual arrangements for the North American market. European markets, we don't -- we have less variability. We have some hedging and it's -- there is a variability around that. Fuel has gone up and down, as you know, over the last while.

We built in normal levels of our known levels of inflation around input costs, around fertilizer when we were doing our pricing adjustments. So it's too early to call any other impact on our business arising from that geopolitical situation, Adam. And we're hopeful that with different options open to us in terms of managing some of these variabilities that our guidance is the number we've given with that overriding qualification. But nobody knows how long this invasion is going to last. Nobody knows what the longer-term consequences of that, and that's where we're flagging at the moment.

The next question comes from Christopher Barnes from Deutsche Bank.

And Frank, best of luck in retirement. I guess I just wanted to dig a little bit more into the revenue guidance. I mean you're targeting mid-single-digit growth. But maybe could you just unpack that in terms of how much you're expecting from pricing versus volume? Like do you expect the volumes to grow in '22, like given the like levels of pricing you've taken so far? And then just also like maybe if you could provide additional color on what you're expecting by segment like fruit versus vegetable versus diversified?

Yes. I mean, Christopher, yes, thanks. We don't actually break out the guidance by in much more detail. And obviously, we're more focused on profitability rather than revenue guidance. I think it will be -- there are some variability depending on production seasons. And diversified, we're going to have more volume and less price or vice versa, depending on the outcome of production cycle, so it's actually very difficult to protect -- to project with any degree of sensible precision.

But our primary focus here is around our profitability, our profit number. And the revenue number is a sum of the parts guidance based on our historical assessment of where we were based on the circumstances we know today, based on the price increases that we've already known and are input into our system. And beyond that, we don't get into a greater level of detail and splitting out by division, price or volume. And obviously, our primary focus is on the EBITDA and indeed on the earnings number.

Okay. That's fair. I mean, are you able to provide any sense for like where you see growth biasing by segment, like just overall, like not breaking out volume versus price?

Yes. I mean we don't again break it out by individual segments. And if you look at our history over the years, you can have a few ups and downs within the different segments, and they tend to give us the right growth number at the end of it. And there is some variability with supply/demand in different markets. And again, we don't think it's sensible to break that out on a subdivision basis.

And that's the way we look at it. The sum of the parts has added up. We focus on each of our individual divisions. We've got the growth that we think we can achieve in each of those divisions. And the guidance, I think, is pretty comprehensive that we've given across a range of financial metrics. And we think that gives analysts and investors a good set of information to work on in terms of evaluating our stock.

Okay. That's fair. And I guess just the last one for me is just like opportunities for like incremental pricing from here. I think you mentioned like there's something to come in Fresh Vegetables. But do you see, just given that like inflation in a lot of areas hasn't really abated as much as we would have expected or hoped back in December, like back when you first layered in price in North America. And like you've reset the contract in Europe, but I mean, we're hearing from other European peers, just -- not in Fresh Produce specifically, but just in CPG, like broadly that the landscape is changing just given the inflationary environment like there's opportunities for more than a single round of pricing. Like are you seeing the same thing there? Or just any perspective you get...

Rory, if I might give it a shot there, I think it's relatively -- if you look at Diversified, which is a little bit over half of our business, that one is dynamic pricing all season long. So there, you will -- and you saw we did well during 2021 to adapt to increases in price in Diversified, and we expect to do the same in 2022. So there you have over half of the business.

Then you have the Vegetable business, which is in revenue terms, some additional, whatever, 14%, 15% of what we do, we're just going up with a price increase right now. And the Fresh Fruits, which is the last 1/3, we also just implemented price increases that were implemented late in this last quarter and beginning of this year. But what we also said in the script here in the beginning is that we see that the utmost strategic importance that we are willing to take price increases again if the environment would change. But we are actually kind of just fresh out of price increases right now. And so right now, we feel comfortable.

Our next question is from Ben Bienvenu from Stephens.

I want to ask with respect to the value-added salads recalls, what do you typically see in the wake of events like this as it relates to demand destruction or customer loss? And what are the processes that you go to -- through to reestablish kind of the trust level with customers and with consumers as it relates to these products? I know they happen with some degree of frequency. But I'd be curious to get your perspective on the after effects?

Johan?

Yes. So when it comes to consumers, there has been no impact on the consumer behavior from this recent recall. We have monitored each other on social media and all that, and it's basically nothing. So we don't feel there's anything needs to be done with, of course, the consumers. We see their behavior, when it comes to value-added, is the same now as it was in midyear of last year.

When it comes to the retailers, we have not lost any of the big contracts that we have because of this. We have lost single SKUs and single divisions as the way for us to get back up to normal operations. And we expect to get that volume back during the next couple of weeks, next couple of months. So we haven't had any major customer loss or consumer -- customer retailer loss, but we have some SKUs that we need to claw back. And it's just about -- just dialogue with retailers, showing them that we're back up and running and that we have the capacity. But we feel relatively optimistic going in here to Q2.

Okay. Okay, great. My second question is just related to M&A. You've gotten your leverage profile down below your targeted range. I know you have aspirations of incorporating M&A to your growth profile of the business, that's something you've done successfully for decades. When we think about the receptivity of the market to M&A in terms of potential targets being willing to sell and valuation being within the palatable range for you all, what does the market look like? And could you give us some sense as to how you think that is likely to unfold in light of geopolitical events underway?

Yes. I think it's a good question, Ben. I mean we do think that there may potentially be some opportunities emerging from the current geopolitical scenario. We'll keep our eyes on those very carefully. And certainly, companies that have a particular exposure to the Russian market in terms of sales, which, as Johan said, we've got minimal exposure to it, that may create some opportunity.

I guess the other interesting macro issue around it is that there is a bit of a disconnect between the public market valuations and the private markets. A lot of the companies in our sector are continuing to trade solidly over the last number of years and whether they're in similar segments like the Diversified. Inflation issues, they're dealing with them. They're getting the price increases. They're putting it through. So certainly, we're not seeing any lowering of valuation expectations of vendors of well-run, well-managed companies.

So that's a little bit of a challenge that the public market is a little bit disconnected from the private market. But with plenty of opportunities out there, we will be financially disciplined to get the right opportunities. It may be that some specific opportunities arise as a result of the current geopolitical scenario. And we'll monitor it and see. And at the right time, we believe we're well positioned to take advantage of those opportunities going forward.

(Operator Instructions) Our next question comes from Roland French from Davy.

Congratulations, Frank. So maybe just starting with the salads business. The impact, you've quantified it at an EBITDA level, I think, $25 million through the P&L. Can you maybe provide some color around the volumes lost or even the sales lost? Just trying to work out how many weeks or months maybe that business has been, I guess, not out of the market, but trying to rebuild volumes. And then maybe, allied to that, what processes from here might change going forward just in terms of that preemptive behavior around future outbreaks potentially.

And then the second question is just around the fixed price contract, I think from memory, Johan mentioned at the Q3 stage that those contracts were looking to include other costs into the matrices. So just wondering have those additional costs landed in some of the contracts and what they might entail?

And then finally, just any color or comment on the supply situation in the banana category. I know last year, there was a lot of volatility through '21. So just wondering has that normalized?

Do you expect us to remember all the questions?

I can repeat them.

Let us start with the value-added. And the time line is it was right before Christmas that we shut down the plant. And it's approximately 1/3 of the capacity that we then take down. And that lasted if you take also the -- all the start-up problems until approximately mid-February. So that's the time frame where we had more or less 1/3 of our capacity out and now we are back to full capacity. We deliver all the retailers that we delivered before, but we're still in the process of just getting single SKUs back and single divisions back. And we believe that to be behind us as we are phasing into Q2. So that's kind of when it comes to the volumes.

When it comes to fixed price contracts, yes, we have, but it's a very limited amount where we have been able to put indexes in that we did not have before. But please remember that already in the North American market for our tropical fruit, the bananas, we already have a few surcharges in place. So what we have been looking at is to get indexes in Europe, and we do have them, but it's very limited and will not have an impact on our business as it is today. I think that was the second question.

And when it comes to the third question, supply situation. So the whole situation now with Russia is new from a supply perspective. They are a major buyer of several different fruit and vegetable categories. But of course, they are big also -- we're looking at bananas here. They are very big in Ecuador, and it will have an impact in Ecuador and their ability to export that volume to Russia.

As we see right now, approximately 2/3 of that volume is still able to make it onto ships in one way or another go to Russia, but 1/3 is left behind. So that is going to mean that there's going to be a supply/demand imbalance. But a lot of that fruit does not have the right certifications and it also doesn't have the shipping capacity to reach other destinations. So it's at least what we see now more an issue of some of the independent farmers than any impact on the market as it is right now. But of course, some of this volume will make it also into the market and will then have an impact on the open fruit that we have, but we do not have that much of an open fruit. Remember, we have almost 80% of all the volumes going into Europe on fixed-price contracts when it comes to bananas.

That's good color. Just going back maybe to my last question in regards to salads just in terms of processes and procedures that might be either enforced or internally, I guess, arisen post the Listeria breakout, product recalls, is there anything there to call out?

Yes, I think so. I think, first of all, I want to call out the good news, and that is that when this happened, we were -- we got the advice that the authorities believe that we had an issue with our -- in our plants. And we were very surprised with that because we know we have industry-leading practices in our plant. And until now, we did not have an issue with our plant.

Then it turned out that we did find an issue with a single piece of harvesting equipment, and there are different now processes put in place when it comes to handling these kind of equipments. And that is going to lead to changes not only for us but also for the industry. So we see new kind of, let's say, cleaning processes to maybe oversimplify it a little bit when it comes to the harvest equipment. That is put in place already, and that is -- we have already invited actually the whole industry to learn from it. We have had the Food Safety Summit. So that is being implemented across the industry.

And secondly is that when -- normally, what we're going to do going forward is that we are going to test if we have a hit where we see that we have a bacteria of some sorts, let's say, Listeria, we will now do more whole genome sequences -- sequencing of that bacteria to see if we can do -- use that big data and see if there can be any other kind of correlation out there that maybe matches with some other supplier or other facilities. So we will use big data a little bit more to find correlations to quicker find if there is any systemic issues out there.

But I also want to call out that the whole process and the collaboration with the authorities worked very well. I think our credibility with the FDA and CDC has increased because of this, because of our openness, our transparency, our -- the way we cooperated and the way we took this seriously and that we actually found the root cause. So we believe that with this credibility and the learning, it's very much -- it's less likely that we will have these lengthy closures going into the future. We believe if anything similar happens again, we will only take it line down and do the investigation and not the plant.

Our next question comes from Ken Zaslow from Bank of Montreal.

Can you hear me?

We can hear you, Ken.

I have a couple of questions. One is when I about 2022 -- when I think about 2023, the $25 million, does that fully come back? Is there any sort of reason that it wouldn't come back? And then do we just kind of move on? So is it completely a one-time item that it just affects 2022 and then everything changes in 2023? That's my first question.

That's what we're hoping for, Ken. Yes, absolutely.

Great. Can you talk about if there's any price elasticity that you're seeing in any of your price increases?

So far, we haven't seen any negative elasticity with regard to demand on the price increases, no.

Great. And then my last question is, can you just take us a tour around the world on any major crop, either things -- crops that are actually exceeding expectations or falling short of expectations.

I think we've got any standard call outs on that, Ken. Banana volume, as Johan said, is a little bit more stable with the impact of the 2020 hurricanes. Bananas, pineapples, obviously the macro political situation can create some imbalance in supply and demand. But there's no other major weather events today that are going to have any kind of -- of our supply that are going to create any major supply chain availability or logistical differences that we're aware of today.

Great. Let me just sneak in one more, and this is probably a softball question, but why do you think there's a difference between public and private valuations. And I'll leave it there.

It's a good question, Ken, and I wish I knew the answer to that. I mean I think public markets perhaps take -- and lately, maybe taking a shorter-term view of life. And private markets, whether it's other buyers or private equity are starting to do the opposite and take a longer view that this is a great sector to be in. It's cheaply valued. It's consistent profitability. So I think that's why they are valuing it a little bit higher in the private markets, yes?

(Operator Instructions) I can confirm we have no further questions. So I'll hand it back to our speaker team for any closing remarks.

Yes. Thank you very much, and thank you to everybody for participating today. Obviously, we're very pleased with the significant achievements over the course of 2021, getting the IPO away, getting the refinancing in place, starting the process of bringing the 2 companies together to create the world's leading fresh produce company.

I'm disappointed about the one-off incident in the value-added salad business, but we think, and as Johan has outlined, we've taken a lot of action, a lot of steps. And hopefully, we can get that behind us and move forward over '22 and have another successful '22. So thank you very much, everybody.