Orsero S.p.A. (ORS) Earnings Call Transcript & Summary

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Orsero S.p.A. Full Year 2019 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Raffaella Orsero, CEO. Please go ahead, Madam.

Welcome to everybody. Before starting to analyze the results, I would like to say a few words. Our full attention goes to the present moment. So far, the current tax emergency has not impacted the business. We are monitoring sales every day, every hour, since problem started. And we have not seen any decrease in revenues. Indeed, we have a slight increase. More in detail, we are seeing a decrease in the wholesale market and an increase in supermarket chain. Unfortunately, the situation is changing every day. The new restriction could have an impact on consumption that we are unable to estimate today. We will have to wait a few days in order to make some evaluations. As regarding the shipping, until today, we have not seen any decrease in the loading factors. This is not surprising as our loading factor is affected by supply in production and by demand on the end market rather than the [indiscernible] higher capacity. But again, we cannot exclude that the new restriction could have some impact also on the shippings. This is a situation that has never happened before, and we must be careful in making our assessments. The drop in oil price have a very big impact on margins because in the last 2 years, we have worked to remove volatility from this business. And today, we have -- we only have contracts. We have bunker adjustment growth, which allowed to maintain stable profitability. So this is the situation now. And so now we can start to analyze the results. Matteo, if you want to start?

I'll let the first word to Mr. Prudenziati for a general overview. And then I will go more in details on numbers.

Okay. Sorry, Paolo.

No, problem, no problem.

We have the conference call, not in the same place.

Yes.

We are not used to this. And good morning, everybody. Talking about the 2019, I don't bother you with, according to presentations you've been receiving, describing the Group, the government and so on because I think you are quite used to it. So I would like more to go straight forward in the highlights we had in 2019 activities taking the 2 of them between corporate and the business. Corporate, what were we doing in 2019? As you -- most of you have been heard in the past, our strategy was, is and will be, to strengthen our distribution position in our playground in Southern Europe. So by executing this kind of strategic approach, we have been doing 3 main initiatives in South Europe during 2019, one in Spain, where we needed an additional distribution area in the south of Spain and the acquisition of Sevimpor in the south, mainly utilized for ripening Canary Islands bananas, not only, but mainly doing this. The second acquisition was in France, while in Fruttica, it's the name of acquisition, because as you've been hearing in the past, one of the -- our weak point in France was the narrow range of products we've been dealing with. So by adding Fruttica, which is totally specialized in importation of Italian product to the French territory, not only we have been adding over EUR 20 million of activities. But leveraging in the medium term, this kind of product to our preexisting distribution of our debt. Last but not least, we have been finalizing our plans to add another JV we used to have in Italy in Sardinia. Sardinia is a very important area, especially for the summer period. So we have been buying the [indiscernible], 75% Fruttital Cagliari, we used to have 25%, and we've already been seeing in '19 a nice growth in this activity in Sardinia. In Paris-concerned brands, we have been...

Paolo?

[ Pronto ]?

Sorry, the line of Mr. Prudenziati was quite disturbed. I'm trying to contact him, separately. If you want to go ahead?

Yes. I will continue. Good morning, everybody. I am Matteo Colombini, and we continue to invest in the brand positioning, specifically focusing our advertising and communication strategy in -- I'm sorry, and some activity, talking on the convenience products to [indiscernible]. And in particular, we had a nice experience with the temporary store at the Milan Central Station. In sponsorship and temporary street shop during a pop music event that is really famous in Italy, that was the Jova Beach Party '19. This activity was set to continue over in 2020. Obviously, probably, we will suffer some of them because the out-of-home consumption in Italy will be deeply impacted by the new [ regulamentation ].

I'm back, Matteo.

You're back, Paolo? So I...

No. Go ahead, go ahead.

So actually, we -- as you know, we were able to finalizing the leasing on MTA, STAR segment market since the 23rd of December, 2019. And we updated the governance system and improved our governance system in accordance to Italian Corporate Governance Code and applicable laws and regulations. On a business perspective, we -- I will go directly on main highlights and the numbers. Net sales of the company are just over EUR 1 billion, thanks to a really positive growth of distribution revenues, whose sales grew by 6.7% all in all. It's a 3.5% like-for-like, excluding the 3 acquisitions that Prudenziati was talking about before. So we are quite impacted by the revenue performance, both in -- on volumes and sales. But we have to highlight as well, subdued profitability it has to be compared with a very good performance in full year 2018 and 2017, and as a consequence of the still unsatisfactory performance of the French activities at that plant, and by the end of the year, an overall challenging market conditions, specifically by the middle of November until the end of December, in particular, on avocado products. We confirm here that we had a great concern in terms of diversification of products portfolio, because actually, the main part of the organic growth, specifically in Italy and in Spain, was driven by new products. So we are still widening our portfolio of products. This is a really good type of growth for us. And we are still working a lot on value-added product line like fresh cuts and smoothies. Going to the south of Italy, we opened 3 new cutting facilities in 2019, south of Italy, north of Italy and in Cagliari. The joint facility already opened in Florence, and we achieved improved results in terms of revenues. We are over EUR 9 million, growing 30% comparing with 2018. And we achieved decent margins. That means that we made that money, and the first year is a good result because 3 start-ups in 6 months is really -- was really challenging for all of us. But still, we didn't get the right margin for that activity. But we are on the right path. We had a new exclusive distribution agreement with a Fresh Smoothies producer for the Italian market that we implemented by the end of the year, by the end of third quarter of 2019. We are working to develop this as well. On the Convenience products portfolio, obviously, we won't forecast a positive year, as we were expecting, because, obviously, we are pushing on the supermarket chains. But on the other hand, we had some interesting projects with out-of-home consumption. And this out-of-consumption will be impacted, probably, until the summer. So on this little portion of the revenues out of EUR 1 billion, we don't expect the same growth that we forecasted a few months ago. Going to the Import & Shipping. We strongly improved the overall adjusted EBITDA, mainly or exclusively, driven by the shipping performance. We -- just to summarize and list what we did over the past 2 years, Ms. Orsero already explained that the main point, but we added a big ship in the timeline. And actually, thanks to this big ship, we were able to optimize the schedule time of the ships, avoiding big inefficiencies and cost adding in the delay of the ship arrivals that we experienced in 2017 and 2018. And on the other hand, we were able to decline a lot the consumption of bunker. At this -- let's say, at the price that was used to pay the bunker and fuel 5 days ago, that was really profitable as well. But still, even the decline in the bunker won't be a negative impact at all. We work on our client base with 2 goals. First of all, to maximize the loading factor. This is probably the first KPI that we take care about, that grew until 94% in 2019. So let's say, we're running at full capacity. And we decided to work with our clients. We [ serve ] the Bunker Adjustment Factor, now the pricing model we have. That means that if the bunker grows a lot, we won't be impacted in a negative way. On the same way, we won't be positively impacted if the bunker goes down. I'm speaking in general terms, obviously, then we have details in every conference, but this is the main picture. We had a lower-than-expected returns on banana business that, at the end of the day, impacted a bit and decreased the profitability of the division. But anyway, you will see we have EUR 3 million more EBITDA on the Import & Shipping activity. Going to the executive summary. In terms of numbers, net sales growth was approximately EUR 1.006 billion. So slightly over EUR 1 billion. Thanks to plus EUR 23 million (sic) [ EUR 53 million ] revenues growth or plus 5.6%. It's at 2.9%, but almost 3%, at constant perimeter. Distribution grew by about 6.7%, despite the downturn of French operation, that was both a downturn in revenues and in margins. Import & Shipping improved by 1.9%, almost 2%, thanks to the better loading factor we achieved. Adjusted EBITDA is difficult to read because in 2019, we have the impact of the IFRS 16. So as a reported number, we had a growth of 17.8% or EUR 5.8 million from EUR 32.9 million to EUR 38.7 million. If we go on, let's say, accounting principle like-for-like perimeter, we see a decrease that is around EUR 3.9 million, driven by a decrease in distribution activities of EUR 5 million, mainly due to French activities, as we said before, and a plus EUR 2 million of -- on Import & Shipping activities. So if we go in comparison, at same accounting principle, we have EUR 29 million in 2019 against 30 -- almost EUR 33 million in 2018. Adjusted EBIT decreased to about EUR 13 million mainly due to the decline on the operating performances. Obviously, when you go to adjusted EBIT, we excluded, at the end of the day, the impact of -- the positive impact due to IFRS 16 on 2019 accounts. And if we go to adjusted net profit, it stands at EUR 5.3 million, declining in respective to the last year. If we go to reported number, we have -- we are about EUR 2.3 million against EUR 8 million last year. Total equity is close to EUR 151 million because the net profit of the period is balanced by the dividends paid on last year's performance -- on 2018 performance. Net financial position, excluding the impact of IFRS 16, is less almost EUR 67 million net debt. Including the IFRS, it's almost EUR 127 million. This is led by -- mainly by the operating CapEx that was close to EUR 25.3 million in 2019. Due to the big investments, important investments in distributing facilities nonrecurring and dry-docking of 2 vessels. M&A activity absorbs almost EUR 17 million. We paid the dividend last year, and the balance is the cash generation of the continuing operation. So actually, if you go on a like-for-like comparison on the accounting principle, we have an increasing of about EUR 33 million, excluding almost EUR 50 million effect driven by IFRS 16 adoption. If we go to the bridge of the net sales and adjusted EBITDA full year '19, for those of you who have our summary document in front, it's Page 11. We see distribution grow by EUR 58.6 million, EUR 30 million are organic growth and EUR 28.6 million is M&A effect. Just to remind that the M&A effect is not a full year consolidation because we have no pro forma on the acquisition we performed during the year. So Fruttica is spreading with revenue and margin effect by the 1st of April of 2019; Fruttital Cagliari, 1st of July, 2019. For details, the full year consolidation. Import & Shipping grew EUR 4.1 million due to -- as we say that due to better loading factor. We had a decline in Service & Holding sales due to lower custom agency service and to add, a little divestment from a small container service company, VCS, performed by the end of 2019. The inter-segment eliminations are EUR 8 million higher than last year. That means, basically that it's not a bad news because it means that our importation activity, mainly bananas and pines, were sold more through our distribution channels in over our distribution accounts in Europe then outside those channels. So it means that we were able to sell more bananas and pines, ripened, in case of bananas through facility in U.S. and upselling green bananas outside our [indiscernible]. If we could go on adjusted EBITDA variance, we see a good -- sorry, there is a -- someone has to mute. Okay. We have distribution activity falling off by EUR 5 million, EUR 3 million more in Import & Shipping and Service/Holding at, both in revenues, as we said, but even margin had a bigger absorption mainly due to higher costs related to marketing and professional expenses. On -- as you see, the IFRS effect accounts for EUR 9.8 million. If you go to Page 12, we made a bridge that we are not used to make over the past presentation, but we wanted to highlight the reason why the distribution business unit decreased in terms of EBITDA performance. Before going on numbers, it's really important to state that normally, our business, our main competitors in the distribution activity run with, let's say, a percentage of EBITDA on revenues around from 2% to 2.5%, which is with the average of our competitors. We are lucky to be in this market, both Italy and Spain, and in normal conditions, France as well, are good markets. But it's not normal. And we cannot assume that we can achieve every year an EBITDA margin 1 point or 1.5 points over the market performance. So what happened this year, as you see in the bridge at Page 12, is that we had an important growth in terms of revenues, but this growth did not lead to a growth in margin. This is -- this can be normal when we grow a lot during 1 year with volume, aiming to increase our market share. So we can assume that increased revenues for 1 year, but we did not increase margins. And fine-tuning the margin increasing in the next year. Obviously, we did not expect the loss of performance of France. As you see, last year, we had 3.6% on EBITDA margin, excluding IFRS 16. So we were around the EUR 31.1 million. Italy grew just EUR 0.2 million, let's say, stable. Spain decreased of EUR 1.5 million. But the reason of the decreasing was not the commercial margins but Spain had some additional costs related to the enlargement of the activity in the south of Spain. And though we are comparing the 2018 performance of Spain, that was really, really early exceptionally, as we said last year. So it's something that we used to share, not too often, but we have seen at least effect for a portion of the decrease. France is the bad news, as you probably know. We had a minus EUR 3.5 million, unexpected and unsatisfactory profitability of AZ France. The reason why we had these impacts were already explained in the first half of the year. That actually was the worst part of the year we faced. related to counter seasonal campaigns like pears, pomelo, avocado and citrus, coupled with some operating issues. And we had partially offset all of these bad results due to the positive contribution of Fruttica, that made end-year more or less in line of what we had a year before we performed in the acquisition. So let's say, a stable performance. Other countries, Portugal, Greece and Mexico had an unchanged profitability. All in all, that Mexican avocado activities balanced a bit of slight reduction in Portugal and in Greece, but not many countries. As you -- if you go to consolidated net profit, Page 13, we see why, I mean, we are going -- we had a decrease from EUR 11.8 million adjusted net profit to EUR 5.3 million adjusted net profit. The reason is the lack of profitability for EUR 3.9 million. We have more D&A and provision for EUR 1.6 million. Its mainly D&A because we are starting to have the impact of big investments we made over the past years. We had a worse performance in terms of financial items. This is due to the fact that we use more credit lines to balance the growth. And that we -- by the end of 2018, we recognized all of our debt through the emission of the bond that has a higher cost than the 10-year expiring. And which we'll [indiscernible] of financing the personal banks. Actually, we were convinced at the moment that it was the right decision to pay a bit more money for our credit lines by the end of 2018. We are even more convinced today that we shall -- it was the really right decision that we will pay a little more in terms of financial expenses, but we have the biggest part of our debt structure as we see in [ prior ] continuing operations. Tax is -- has an impact, positive impact, of 0.6% -- EUR 0.6 million, I'm sorry. Here, we could have expected a better tax impact due to lower results. But unfortunately, the issue that occured to Simba for the duty integration is a penalty. So we have no tax shield on penalties, so has no impact on taxation, a little impact of adoption of IFRS 16. Then we have EUR 3 million of nonrecurring in 2019 mainly related to Simba duty effect as the litigation effect is EUR 1.6 million. And the balance is mainly the cost of transitioning from AIM to STAR segment and MTA. To conclude the analysis of the numbers, we go to net financial position. Net equity is pretty stable, as we say, because the net profit 2019 is balanced by the dividend paid on 2018 results. Net financial position is growing because of operating CapEx, so mainly due to fresh-cut project in Italy of EUR 1.8 million. EUR 3.3 million due to dry-docking of 2 vessels, EUR 3.2 million, new ripening rooms and cooling equipment in France , EUR 2.2 million instrumental property of a warehouse in France previously leased. EUR 3.2 million on preparation of the new warehouse of Dos Hermanas in Spain. This is a south of Spain project, combined with the acquisition of Sevimpor. EUR 4.3 million is the first tranche of the warehouse enlargement in Verona and refurbishment of the machineries. And EUR 1 million due to increasing of the ERP projects. Then we have to [ rebalance ], let's say, all the operating Capex. Then we have the M&A, EUR 17 million as we talked before, EUR 2 million of dividends and the balance is the generation of cash flow from the continuing activities. If we go to commercial net working capital seasonal evolution, we see that, more or less, by the dimension of the Group now around EUR 1 billion, we have a swing between EUR 17 million, let's say, between EUR 17 million and EUR 20 million from first half and second half, and we expect to continue on this trend. We have complete the -- completed the number of reviews. Before letting the word to the investors and analysts for the Q&A session, I just would like to catch your attention on Page 16 of the presentation, because we decided beginning 2020 to reshuffle the business units that we used to see over the past 3 years. What we decided to do is to include the import of bananas and pines, especially in the company named Simba, in the business unit, distribution. So letting the shipping alone, so we will have shipping and -- distribution and shipping, let's say, the 3 main business units will be Shipping and -- Distribution and Shipping. Why? Because we -- this decision was made during the leasing process on MTA, STAR segment. Even thanks to some really profitable discussion with Frutaliana, we -- let's say, we decided to avoid to have a good difference between aggregated revenues and consolidated revenues. And this was caused by the big volumes of Simba that is sold to the distribution channels. And the -- in South France, the reason is that Simba is always more acting right center of the buyer of bananas and pines for all the groups. We decided to work, as you know, Simba always load its bananas and pines on our ships, 95% of the volume, and they sell -- Simba sells 85% of the volumes through the distribution challenge -- channels over Europe. So it's more correct with the pricing condition, especially after the M&A we performed in Spain and in Italy in 2017 to see the numbers of Simba within the distribution segment than with the shipping segment. Obviously, we will make all the like comparison -- like-for-like comparison, beginning from the first quarter of 2020, so to give all of you the possibilities to appreciate all the difference with -- before numbers, but this would be the new route in our business unit. Page 17, we have a graphic summary of the condensed company structure. Just to highlight that we aim to -- always to simplify the number of companies. So we probably merge Sevimpor, Hermanos Fernandez Lopez this year 2020. And between 2020 and 2021, we will merge Fruttital Firenze, Galandi and Fruttital Cagliari within Fruttital. This is a better solution for dividend growth. And it's simplifying all the corporate activity and the accounting and reporting activity, obviously. Last few words. As Raffaella said, we confirmed the guidance 2020 on both on net sales, adjusted EBIDA and net financial position. At current condition, obviously, until last night, when we released the communication and the presentation. So at the moment, we have no reason to change our plans for '20 guidance and the numbers for 2020. And the drivers will be the same. So organic growth, consolidation of the Fruttital and Fruttital Cagliari acquisition, recovery of -- in profitability on French markets, improvement in shipping and maintaining a sound financial position. Obviously, as Ms. Orsero said, we will monitor and we will study day by day, the new [ regulamentation ] implemented by the government in Italy, and who knows, in Europe as well in the next week. And we will give, if needed, update to the market through official communication. Page 19 is the last word I'll say. We made a summary of the purchase of the 4 industrial properties in Italy, performed in the beginning of 2020, middle of January. This is -- obviously, we made a recent memorandum as the laws requires, and it's available on our website. It's really detailed and explains every single aspect of the deal we made. But we wanted to bridge this, its effect on adjusted EBITDA and net financial position, including and excluding IFRS 16. This is why -- the main reason why the target for net financial position, excluding the IFRS 16 for 2020, is stable in comparison with this year, and it's not decreasing because we made another big investment that's really profitable, as you can see on top of this. To me, it's everything. So I will stop, and leave you the -- for the -- leave you the word for the Q&A session. Thank you very much.

[Operator Instructions] The first question is from Andrea Bonfa with Banca Akros.

I hope you can hear me properly, as I got some background noise that is somewhat on the line. Anyway, my first question is, how confident are you to avoid, let's say, the good performance of the French operation? So if you can just quickly remind us of the remedy action? And what's the pace of that in France, if it's possible? And then what are, in your opinion or what you can see at this point in time, the potential effect of the coronavirus on your reference market? I was reading today in the [ service patrol ] that there are scarcity of temporary workers in the stay in agriculture in Italy, and this is going to likely affect some products and some seasons. So maybe on your opinion also on this point?

Yes. Mr. Bonfa, I just ask you to just wait patiently due to moderators consulting for the answer.

Okay.

And for the plant, and -- we -- several corrected actions have been taken on the French company. Can you hear me? I...

Yes, yes. This is a little bit disturbing, but it's okay.

Yes. Good. And we made some change in the sales team. And our senior Italian Product Manager moved to France to supervise and tutoring the commercial team activities. And a new monitoring system for the Product Manager has been implemented. So we are quite confident, the recovery of profitability, even if not yet, at the highest level. In the Italian facility, we haven't seen any problem with the temporary workers at the moment. And it's very, very difficult to understand what could happen in the future days. At the moment, everything is coming in the same way. So it's very difficult...

Raffaella, if I may, just to give a little view -- if you -- Andrea if you think about what is written on the newspaper and on the government side, actually, we are one of the only, let's say, protective business in general terms. It means that all the food chains and productivity from, let's say, agriculture to transformation to distribution at every level is one of the only activity that is maintained. So in terms of capability of continuing our activity, we are positive, we can say. What we cannot forecast, because it is not possible at the moment, is what will be the level of consumption in Italy, and then, if these same measures will be adopted by other countries in Europe. I remind you our main free market is in Italy, Spain and France that are really close one to another. What will be the impact on the consumption? So we are not -- we are pretty safe in comparison with, let's say, 95% of the other businesses. We do not export, let's say, our fruit. So we're not producers. So when you read there's problems in the Italian agriculture, we may be impacted by some campaigns. But I remind you, we are mainly importers of fruit. So our agriculture chain is more weighted on South America, New Zealand, South Africa, Africa. So our sourcing places are mainly outside Europe, not -- we have some sourcing in Europe, obviously, but, let's say, 80% of our revenues are made with sourcing outside Europe. So at the moment, this is what we can say. I think, the only fact that we decided to confirm the guidance for 2020, taking, obviously, some partial risk on that because we -- it's a good sign of the fact that until now, we had no impact, then we have to see day-by-day because it's impossible to forecast.

[Operator Instructions] The next question is from Gabriele Berti with Banca IMI.

Just a very quick question about CapEx. Which is the level do you expect of operating CapEx in 2020, that is excluding the purchase of the industrial properties?

Gabriele, its Matteo. Let's say that in 2020, we will have another year, as you see on the forecast of net financial position, another year of important investments, mainly due, let's say, to the infrastructure or property acquisition in -- by the beginning of the year in Italy. For a [indiscernible] platform, it's mixing. Price and taxes is almost EUR 18 million. But this is completely extraordinary. So -- and the deal is financed -- totally financed on a 10-year perspective. So won't have an impact on the cash flow in comparison with the cost we were used to pay to lease those properties. So it has an impact on the net financial position, in general terms, but, on the cash flow it has no impact. Because we used to pay EUR 2 million of cost, and we pay EUR 2 million or something less between reimbursement of the long-term financing we had and direct and indirect taxes due to the ownership of the properties. Then this year, we have, basically, the queue of the Verona facility enlargement, that is going to be around roughly EUR 3 million, EUR 2.5 million. Then we have the dry-docking of the other 2 ships, it's going to be Cala Pino and Cala Pula, and discounts for other EUR 3.5 million. So we will have, roughly, EUR 7 million this year, plus EUR 18 million already made, plus the, let's say, EUR 5 million, EUR 6 million that is the normal, let's say, maintaining of our infrastructure all over Europe. Let's say that to give you some point that at this stage, the group, with this dimension without considering the dry-docking, because the next one will be in 4 and 5 years from now, I think the company can perfectly go ahead with, let's say, investments around between EUR 9 million and EUR 10 million per year. So excluding, obviously, M&A and other, let's say, nonrecurring property or acquisition. So let's say, this is the dimension of the investment that we forecast for 2020.

[Operator Instructions] Ms. Orsero, gentlemen, there are no more questions registered at this time. I give the floor back to you for the final remarks. Thank you. Ms. Orsero, gentlemen, if you want to say something, say hello to participants?

Okay. We wanted -- you go, Raffaella, because Paolo, I think, has cut the line, Mr. Paolo.

Okay. And thank you to everybody. And this is very complicated moment.

Hello? I think the line to Ms. Orsero went down.

I'll give you the last -- thank you, everybody, for the attention. It's -- we are doing our best to keep the market informed by the evolution, and we will, if something changes. And we -- when we go back to business, there is -- the day-by-day is tough. And thank you for the attention. Last time, goodbye, everybody.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.