Flora/Upfield - comment

The Dutch plant-based food group released strong Q3 2024 results yesterday. The highlight of the quarter was positive volume growth for two of the three regions for the first time in four years as well as momentum from new products and contribution from spreads. Gross margin improved by 1.8% to 40.1% and EBITDA margin improved by 1.2% to 26.9% which was driven by cost cuts and value creation savings. Net leverage was flat at 6.5x vs. the previous quarter but the company expects de-leveraging to continue in the seasonably strong fourth quarter.  

It was a more mixed picture in terms of geographies - North America, Indonesia, Mexico & Turkey (Flora’s largest markets) remained weak due to low consumer demand, competition and elevated inflation. Growth improved due to mix shift in value-led markets in Germany and Poland.

The company will make a decision on how it will tackle its remaining senior notes due 2026 after Q4 2025 and how large liquidity & free cash flow will be in Q4. Management did hint on the investor call that Q4 trading was going well.  In general, the company seemed to be doing a good job with factors that are within its control e.g costs & synergies and tackling weaknesses in some areas of the group with more promotional activity and new products.        

We have a position in the 2026 senior notes however with the notes trading at 99 - it is time to say goodbye to a name that has rallied from our purchase price at 73 and recycle the capital into new opportunities.