Earnings Call Transcript
Dole plc (DOLE)
Earnings Call Transcript - DOLE Q4 2021
Operator, Operator
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.
Rory Byrne, CEO
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 2 times 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 have 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 their 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.
Johan Linden, COO
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 has 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 adjustments 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 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 the 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 emerged 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 toward 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 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 that 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 the 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 plan that included testing and hold procedures on finished products. This, in turn, resulted in operating at a lower capacity and significant disposals of finished goods until mid-February. We are now back to operating at full capacity and are pleased that the investigation validated the industry's leading food safety practices within our plants. We have taken additional steps in developing further protocols for the sanitation of harvesting 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 one-time 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 one-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.
Frank Davis, CFO
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 the 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 the full year 2021, which corresponds to an 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 contributed 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 and 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 the 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.
Rory Byrne, CEO
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 2022 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 that 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 enjoyable retirement. And we wish him the very best 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.
Operator, Operator
We take our first question from Adam Samuelson from Goldman Sachs.
Adam Samuelson, Analyst
So my first question is to clarify how you're viewing the outlook for 2022. It seems to account for the $25 million headwind from the salads business, but I'm unsure about how you perceive the market uncertainty related to Russia and Ukraine. Could you elaborate on the inflationary dynamics concerning bunker fuel, fertilizer, logistics in general, and the foreign exchange rates reflected in the EBITDA guidance? Additionally, could you highlight the factors you are monitoring that might further influence your outlook as we observe how the markets develop?
Rory Byrne, CEO
Okay, I'll address that, Adam. It's Rory here. We've adjusted our expected outcome for 2022. The impact of $25 million in the VA is clearly defined, and the remainder is primarily due to the foreign exchange translation impact that Frank mentioned, stemming from the dollar strengthening against European currencies. Regarding inflation, as Johan noted in his presentation, we've implemented the necessary pricing changes across the group to account for that. We hope to see some additional progress on the VA side, although there has been a delay in executing some of the second price increases due to the Listeria recall. Concerning the macro geopolitical situation, we acknowledge that we are venturing into unknown territory. It's quite challenging to forecast the medium- or long-term impact that these circumstances may have on trade flows and cost inflation. There is noticeable volatility in fuel prices, and we might experience a decline in the freight market due to excess capacity resulting from reduced trade flows into Russia, specifically. Additionally, there is uncertainty with foreign exchange, especially regarding translation and the potential movement of the dollar against major European currencies. Our forecast is based on the information available today, and we haven't incorporated any significant adjustments, but we've recognized the uncertainty surrounding the macro geopolitical landscape. I hope that provides some clarity, Adam.
Adam Samuelson, Analyst
It's helpful. I understand there are both direct and indirect pricing impacts. Can you help frame how you perceive your cost sensitivity to changes in fuel, fertilizers, and other key raw materials in your operations, beyond just the produce purchased from third parties?
Rory Byrne, CEO
Yes, in our largest markets, particularly in North America, we have built variable clauses into our contracts to address the impact of fuel prices. In European markets, there's less variability, and while we do have some hedging in place, it still introduces some fluctuations. Fuel prices have experienced ups and downs recently. We've accounted for typical levels of inflation related to input costs and fertilizer as we adjusted our pricing. It's too soon to determine any further impacts on our business stemming from the geopolitical situation. We hope to manage these variabilities effectively, but we stand by our guidance with the caution that the duration of this invasion is uncertain, and we cannot predict the long-term consequences at this time.
Operator, Operator
The next question comes from Christopher Barnes from Deutsche Bank.
Christopher Barnes, Analyst
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?
Rory Byrne, CEO
We don't break out the guidance in much detail, and our main focus is on profitability rather than revenue guidance. There is variability depending on production seasons, and in a diversified approach, we may see more volume and less price or the opposite, based on the production cycle outcomes. This makes it challenging to project with any precise accuracy. Our primary emphasis is on our profitability and profit number, while the revenue number is an aggregation based on our historical assessments and the price increases already factored into our system. Beyond that, we don’t provide a detailed breakdown by division, price, or volume, and we prioritize EBITDA and earnings numbers.
Christopher Barnes, Analyst
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?
Rory Byrne, CEO
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.
Christopher Barnes, Analyst
That's understandable. My final question is about the potential for additional pricing strategies moving forward. You mentioned opportunities in Fresh Vegetables, but considering that inflation has not decreased as much as we anticipated back in December, especially since you adjusted contracts in Europe, we are hearing from peers in the broader consumer packaged goods sector that the market is shifting due to the inflationary conditions, which may create chances for more than one pricing adjustment. Are you observing the same trends? Any insights you could provide on how you're approaching the pricing landscape?
Johan Linden, COO
Rory, if I could respond, Diversified, which makes up a little over half of our business, utilizes dynamic pricing throughout the season. We successfully adapted to price increases in Diversified in 2021 and we expect to do the same in 2022. This represents more than half of our operations. The Vegetable business accounts for roughly 14% to 15% of our revenue and we are currently implementing a price increase there as well. For Fresh Fruits, which constitutes the remaining third, we have also recently initiated price increases at the end of last quarter and the start of this year. It is important to note that we see strategic value in the ability to adjust prices again if market conditions change, but we have just implemented these price increases and feel confident for now.
Operator, Operator
Our next question is from Ben Bienvenu from Stephens.
Ben Bienvenu, Analyst
I want to ask about the recent recalls of value-added salads. What typically happens after events like this in terms of demand loss or customer withdrawal? What steps do you take to rebuild trust with customers and consumers regarding these products? I know these incidents occur somewhat regularly, but I would like to hear your insights on the consequences.
Rory Byrne, CEO
Johan?
Johan Linden, COO
Yes. So when it comes to consumers, there has been no impact on consumer behavior from this recent recall. We have monitored social media, 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 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 retailer loss, but we have some SKUs that we need to claw back. And it's just about dialogue with retailers, showing them that we're back up and running and that we have the capacity. But we feel relatively optimistic going into Q2.
Ben Bienvenu, Analyst
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 into 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?
Rory Byrne, CEO
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, Operator
Our next question comes from Roland French from Davy.
Roland French, Analyst
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?
Johan Linden, COO
Do you expect us to remember all the questions? Let us begin by discussing the added value. We shut down the plant just before Christmas, which accounted for about one-third of our capacity. This situation lasted, including all the startup issues, until around mid-February. During that period, we effectively had a third of our capacity offline, but we are now back to full capacity. We are supplying all the retailers we did before, although we are still working on restoring certain individual stock keeping units and divisions. We anticipate resolving these issues as we transition into the second quarter. Regarding fixed-price contracts, we have some in place, but the number is limited where we have incorporated indexes that were not available previously. It’s important to note that in the North American market for our tropical fruit, particularly bananas, we already have implemented a few surcharges. Our goal has been to establish indexes in Europe, which we have done, but the scope is quite limited and will not significantly affect our current business. As for the supply situation, the recent developments in Russia present new challenges from a supply standpoint. Russia is a significant buyer of several fruit and vegetable categories, and they play a major role in the banana market, particularly in Ecuador. This circumstance will influence Ecuador’s capacity to export that volume to Russia. Currently, about two-thirds of the volume is still being shipped to Russia in various ways, but one-third remains behind. This will create a supply-demand imbalance. However, much of the fruit lacks the necessary certifications and shipping capacity to reach other destinations. At this point, it appears to be more of an issue for some independent farmers rather than having a major impact on the overall market. Nonetheless, some of this volume will enter the market and affect the available fruit, but we do not have a significant amount of open fruit. It’s worth noting that nearly 80% of our volumes shipped to Europe are under fixed-price contracts for bananas.
Roland French, Analyst
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?
Rory Byrne, CEO
Yes, I believe there is good news to share. Initially, we were informed by the authorities that they suspected issues with our plants, which took us by surprise since we maintain industry-leading practices and had not encountered problems before. Ultimately, we discovered an issue with a specific piece of harvesting equipment, and we have since implemented new procedures for handling such equipment. These changes will have a wider impact, not just for us, but for the entire industry. We are introducing new cleaning processes for harvesting equipment and have invited the industry to learn from our experience. We recently hosted a Food Safety Summit to promote these changes. Going forward, if we identify bacteria like Listeria, we will conduct more comprehensive genome sequencing to analyze correlations with other suppliers or facilities. We aim to leverage big data to identify any systemic issues more quickly. Furthermore, our collaboration with the authorities has been very effective, and we believe our credibility with the FDA and CDC has strengthened due to our transparency and commitment to addressing the situation, including identifying the root cause. We are hopeful that this newfound credibility will reduce the likelihood of lengthy closures in the future, allowing us to address similar issues more efficiently by only shutting down affected lines instead of the entire plant.
Operator, Operator
Our next question comes from Ken Zaslow from Bank of Montreal.
Ken Zaslow, Analyst
Can you hear me?
Rory Byrne, CEO
We can hear you, Ken.
Ken Zaslow, Analyst
I have a couple of questions. One is regarding 2022 and 2023. Will the $25 million fully return? Is there any reason it wouldn’t? And then, do we just move on from this? Is it entirely a one-time issue that impacts 2022, with everything changing in 2023? That’s my first question.
Rory Byrne, CEO
That's what we're hoping for, Ken. Yes, absolutely.
Ken Zaslow, Analyst
Great. Can you talk about if there's any price elasticity that you're seeing in any of your price increases?
Rory Byrne, CEO
So far, we haven't seen any negative elasticity with regard to demand on the price increases, no.
Ken Zaslow, Analyst
Great. Lastly, could you provide an overview of any major crops around the world, specifically those that are either exceeding or falling short of expectations?
Rory Byrne, CEO
I think we've covered everything standard on that, Ken. Banana volume, as Johan mentioned, is somewhat stable despite the impact of the 2020 hurricanes. Bananas and pineapples are affected by the macro-political situation, which can lead to imbalances in supply and demand. However, there are currently no significant weather events that we are aware of that will disrupt our supply or create major supply chain or logistical issues.
Ken Zaslow, Analyst
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.
Rory Byrne, CEO
It's a good question, Ken, and I wish I knew the answer to that. I think public markets may take a shorter-term view, while private markets, including other buyers and private equity, seem to adopt a longer perspective, recognizing this sector as a great opportunity. It is undervalued and shows consistent profitability, which is why they are valuing it higher in the private markets.
Operator, Operator
I can confirm we have no further questions. So I'll hand it back to our speaker team for any closing remarks.
Rory Byrne, CEO
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 two 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 2022 and have another successful 2022. So thank you very much, everybody.