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 First Quarter 2020 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Paolo Prudenziati, President of Orsero. Please go ahead, sir.

Hi. Good morning to everybody. Thanks to being with us today in spite of the multiple commitments I imagine you have in this period of year. As you know, the company, for the first time, is presenting the first quarter results because of the new entry in the stock market at the end of last year. We had many changes. We changed the governance. We have been changing also some scheme for having results every quarter. And as soon as we started, we have been facing this outside impact of the COVID-19. But in spite of this, without using your time, I would say, so far so good in a nutshell. The result of the year are so far encouraging us. I don't want to use your time any longer, and I will pass the speech to Mrs. Raffaella Orsero, the CEO of the company. That's it.

Good morning to everybody. I will make a short introduction before moving on to the analysis of the number. The quarter closed positively. We are satisfied and confident for the future despite the COVID-19 emergency. So as a regard to the health emergency, we can say that it did not have any significant impact on sales or on the results. All the necessary measure for the workers' health have been taken. We have never stopped the activity in any of the areas in which we operate. For that, we are facing some incremental cost balanced until now by less travel expenses. There were no significant problems with suppliers all over the world. The sector -- all the sector reacting quickly. There were a few tries to increase the price, but nothing particularly relevant. Good sales, all in all. We saw a drop on traditional markets, but it was offset by higher sales in supermarket sales. The health of [ own ] typical products like pineapple and Fresh Cut are facing headwinds. The Import & Distribution segment saw an increase in revenue and a slightly lower-than-expected profitability due to a difficult start of the year for bananas and pineapple, due both to the cost of goods in origin and the high freight rates paid by Simba to the shipping company. However, let me point out that the first quarter in our sector is a soft quarter. Both sale and adjusted EBITDA show a seasonal swing over the different trimester. I think it might be of interest, I mentioned France, the organizational change has been radical. We will expect a year of recovery, but still a year of transition. And the data are going this direction. But 3 months is a short time to express a judgment that will be more consistent at the end of June. Shipping has very good results in terms of EBITDA due to a good loading -- a very good loading factor, combined with an increase in freight rates related to the new regulation by IMO 2020. The fall in the oil price did not affect the quarter, but we can already say that according to the mechanism of backflows we have implemented this year will not have a significant impact for the coming quarters. I will conclude by saying having regards to the results of the first quarter and to the trend of April and of the first weeks of May, we can confirm the guidance 2020, obviously, in the absence of other unpredictable shocks due to the COVID pandemic.

Thank you, Raffaella. I will -- I'm Matteo Colombini. Good morning, everybody. I will go through the numbers. I just would like to point your attention on the fact that we redesigned the business segment for 2020. This a result of the conversation we had with Borsa Italiana during the listing process to MTA STAR. We agreed that was a better way to express our numbers to include the importation activity that, for your memory, is green bananas importation and pines. We deem the distribution sector with a double goal. First of all, to have all the margin of the product within the same business unit; and on the other hand, to avoid the high intersegment elimination that we used to see in our numbers. On the other hand, on a business point of view, this is a right representation because the evolution of the group, over the past 3 years, now is the Simba activities. So import activity, that is for the 85% of the revenues related to the distribution company. So it's correct and it's really clear to have the numbers of Simba within the Distribution business unit. So now we have Import & Distribution, that is the importation and distribution of the fruit and vegetables that we perform and we trade every day. And then we have just the Shipping activity on the other business unit that always, for your memory, is 50-50. It's 50% captive for volumes of the group, and the other 50% of the volumes transported is related to third parties. Service business unit is unchanged. Going to the executive summary of the figures, we can see net sales touching EUR 241 million by the end of the first quarter. It's plus 8% versus last year with almost 6% like-for-like. The balance is the effect of the consolidation in the first quarter of the companies acquired last year. I remember for you that Fruttica was consolidated beginning the first day of April, and Fruttital Cagliari was consolidated beginning the first day of July. Adjusted EBITDA is up almost 40%, 39%, or in absolute terms EUR 2.7 million, from EUR 6.8 million to EUR 9.5 million. If we see this figure without the effect of the IFRS 16 principle -- accounting principle, it's always EUR 2.7 million in absolute terms, but it grows to almost 60% in percentage. The adjusted EBITDA margin touched at 3.9% versus almost 1% more last year. Adjusted EBIT rose to about EUR 3.3 million, mainly due to a better operating performance. Adjusted net profit stands at EUR 2.3 million versus a loss that we had last year. As Mrs. Orsero said before, we had to metabolize, looking at our numbers, that actually the first quarter is a low one normally. So we are always talking about a trend. It's a good trend that we see on -- both on sales and profitability. Obviously, we will have to make a touch base in June, there is a more consistent result throughout the group. In terms of equity, we -- more or less the value of the total equity stands at EUR 150 million. Net financial position, excluding IFRS 16, stands at EUR 100.2 million or EUR 135 million including IFRS 16. Then we will have a focus -- special focus on net financial position because we have a big switch between IFRS 16 and old-fashioned, I will call it, net financial position. Going to Page 12 of the document, just some highlight about sales and adjusted EBITDA variance. As we saw before, we have an important growth in terms of sales. Import & Distribution is up of about 7.3%. Including the M&A effect, it's 5% like-for-like. It's a good sales momentum in all key markets. So the main ones, Italy, Spain and France. A little decline in sales in the Mexican avocados. Shipping is up plus almost 35%. This high growth is related to the implementation of the IMO 2020. So actually, the bunker we use to burn to run our ships used to be more expensive until the end of March, let's say, the middle of March. And on the other hand, it's the effects of the increase we were able to perform on the basic rate -- on the freight rates to the basic rates of the -- for all the clients. In terms of EBITDA, we can see actually Import & Distribution more or less unchanged in respect with last year. We would have expected even a better result, but we -- as Mrs. Orsero said, we had some headwind as market conditions in the bananas importation business and some headwinds in avocado distribution in terms of products, that it goes with the headwind we faced with the, let's say, high-end products, so exotic products or Fresh Cut. Shipping activity adjusted EBITDA is up. It's almost the double of last year. This is an effect driven by the better freight rates and the good loading factor, the very good loading factor. There are always effects, but we already have this effect last year to the better efficiency that we achieved changing our schedule, inserting a fifth vessel compared with 2 years ago. And the new schedule route is 35 days instead of 28 days. This -- let's say, this new time chart let us have some better effect in the efficiency, both in terms of consumption and avoided nonrecurring cost related to delay in shippings. Just to remind you, the IFRS 16 effect accounts for EUR 2.2 million out of EUR 9.5 million total. Going to the net profit analysis, the change versus last year is really important. It's EUR 3.4 million in terms of adjusted net profit. The main effect is the better profitability of the group, the better performance of the group, and then we have a better tax effect compared with last year that is related to the mix of result that is positioned more on the Shipping activity than the Distribution activity in general terms. Then we have a little more G&A provision. This is the result of the high and important investment we performed over the past 2 years on the strategic distribution platform we own in Europe. And we have a better effect in terms of financial insurance profit, mainly due to a good exchange rate effect we had between the Mexican pesos and the dollar in the month of March. It accounts for almost $0.5 million effect. In terms of reported net profit, we go from minus EUR 1.5 million to plus EUR 1.8 million. So both adjusted and reported is a good -- really good result compared with last year. Going to Page 14. We have the focus on specifically the net financial position. Just a couple of words before going into the net financial position about the shareholder's equity. As you can see, the net equity is decreasing in spite of positive economic results. This is the effect of a noncash negative impact of EUR 3 million, including almost EUR 1 million of mark-to-market impact on the hedging instrument on the bunker and EUR 1.5 million on ForEx impact on the net equity of non-euro subsidiaries, specifically Mexican activities. For the same reason why we had a good effect in the exchange rate on the profit and loss, we have a noncash negative effect on the net equity variance, but it's all noncash. On net financial position, we have a slightly increasing net financial position if we look at it with IFRS 16 effect. And this is led by a positive cash generation, about EUR 6 million; a commercial working capital absorbed, about EUR 19 million. This is a seasonal effect -- both seasonal effect and the effect of the high increase in sales that led to a higher absorption in commercial net working capital. And normally, this effect that is well explained in the last chart on the left of the page is reabsorbed in the second half of the year. Operating CapEx accounts for EUR 4.2 million, and this includes mainly investment in core activities. And then we have the other bigger effect that is related to the purchase of the 4 instrumental properties in Italy, previously leased and used as warehouse logistic platform. This accounts for almost EUR 18 million. And this is a switch from IFRS 16 impact of last year to the old-fashioned net financial position. So all in all, we have a better effect due to the good deal we performed in acquiring this platform. It accounts for almost EUR 11 million. But at the end of the day, we have obviously the price paid in the net financial position, and we have a decrease in IFRS 16 of about EUR 30 million. So in terms of numbers, these are the main highlights. The last page where I want to point your extension is Page 16, where we tried to contextualize a bit, even with numbers, our confirming of the guidance. And we're trying to explain to all the investors and analysts, which is our trend over the 4 quarters of the year. As you can see, we confirm the guidance for the full year. Normally, Q1 is a soft trimester, both in sales and adjusted EBITDA, but more in sales. And we normally see, in our business, an important seasonal swing over the different quarters. So the sales, but even more, the profitability, is not proportionally distributed over the 4 quarters. Normally, Q1 sales are usually slightly lower than 25% of total year sales. Historically, it's not over the 23%. This is the analysis we made. Obviously, all this analysis has to be taken as a guide, not as law or as a sign, but this is the historical trend. Q1 adjusted EBITDA of Import & Distribution, driven by business and product mix seasonality, is the lowest among the 4 quarters. On the other hand, Shipping Q1 is generally a tough one because for the same reason why the Import & Distribution profitability see a soft one in the first quarter, because the main product we trade -- or the weight of bananas is really high. So we have a very good loading factor in Shipping, but the price/mix in Distribution & Import is lower than what we see than in the second and third quarter, specifically. In general, the mix of the business model of the group led to a Q1 for the group that accounts for less than 20% of the total year in terms of EBITDA. As Mrs. Orsero already -- last word, net financial position. We can still say that we are in line with the expectation. It obviously is the more difficult key figure to forecast, given the type of business we run with low margin and high volumes. But still, we think to be able to achieve at least the high end of the guidance. In terms of market framework, as Mrs. Orsero said, we're seeing a good trend. But still, we have to say that in the future, market can be uncertain and troubled. So we're really up and monitoring all the critical aspects. And all in all, we will be able, in June, to give to the market and to the analysts even a stronger update about how the group is going on. I'm done with the numbers, and I will leave the space for the Q&A session. Thank you.

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

My questions are the following. One is related to the, let's say, earnings momentum of Distribution. We saw the very strong performance of Shipping. And I'm wondering if it's possible to have, let's say, a commentary from your side on when do you expect their earnings momentum to improve. And the second one is on your net -- in light with your guidance, are you confident to reach the [ EUR 105 million ]? And do you expect that you'll generate it from Q3? Or how does it work?

Andrea, it's Matteo. To be honest, I -- the line was disturbed and I didn't get both of the questions. So please, if you can repeat it. I'm sorry, but I didn't get the questions.

Okay. Well, maybe the problem is just [indiscernible]. I hope you can hear me better now. The first question was related to the earnings momentum of Distribution in the sense that the Shipping performed very well. But Distribution, let's say, is more stable or slightly negative. So when do you expect this momentum of Distribution to improve? If you can comment on that side? What are the conditions to, let's say, to let Distribution improve? And second one is on the net financial position. You've got a guidance of EUR 100 million, EUR 105 million. When do you expect to converge into that guidance?

Okay. Andrea, thank you.

For the first -- Matteo, sorry. For the first question, I think that we will see the Distribution expense even more consistent performance in the coming quarter dueit's EUR 2 million to the seasonal campaign. We are confident about that. On the net financial position, Matteo, can you answer?

Yes. Yes. Normally, Andrea, the -- it's really related to Distribution. Because on the net financial position, we have 2 effects. It's the normal seasonal effect that we have normally until end of April, beginning of May. This is led by the anticipation we make to the strategic suppliers to have the best quality product to distribute during the summer. That's why, normally, we have -- and then obviously, when this amount of sales grows of 8%, or in terms of Distribution, 7% and something, this is even resulting in a higher absorption of net working capital. Normally, the effect of the group is to have a slightly decreasing in June. But still, we do not generate a lot of cash. The cash generation is in the third and then in the fourth quarter normally, because we have the results in terms of cash of all the sales performed during the summer. On the other hand, we have to say that this year, obviously, we -- within the guidance, we were really challenging ourselves both in sales, EBITDA and net financial position because we implemented a series of action on any key figures. Specifically, net financial position, we had some strategies to, let's say, keep the time of cashing in the credit smaller. But on the other hand, with the COVID pandemic, we did not force these kind of actions because as you can imagine, in this period, it's really difficult to be really strict in cashing times. We prefer to let the business grow, always controlling a lot of credit risk, but we prefer to let the business grow and to take all the opportunities we can have on the market. On the other hand, there's another effect that basically is related to the fact that given that the HORECA segment was really low, and is really low at the moment, normally, in this channel, we cash in with better terms. Sometimes, we cash in, in cash. Sometimes, we cash in within 1 or 2 weeks. The switch of these sales on the supermarket chains lead to a longer working capital time as the mix. So this is another effect to take in account, and we cannot -- we have to see how it goes on. Obviously, when we switch from 15 days cash-in to 60 days cash in, we have an effect. We do not take a higher risk in terms of credit because supermarkets are okay in terms of credit risk. But surely, we use some liquidity to finance the business. So to give you the answer, as I told you, finishing my highlighting on numbers, I think we still can get the net financial position guidance at least on the high end. But I have to tell you that even if we will be EUR 5 million more in net financial position, that we will be able to achieve our economic results, we will be really satisfied.

Is it possible, just to understand, going back on the Distribution side, how much is your expectation on Distribution to rely on the recovery of France? Just to...

Compared with last year is -- on a full year basis, its EUR 2 million.

[Operator Instructions] The next question is from Roland Könen with Value-Holdings.

I've got 2 questions. First one goes into the direction of your Shipping business. With respect to the massive drop in the oil price, could you give some insight in the impact of your Shipping business from Q2 onwards? And the second question would be on the nonrecurring items in Q1 or more, do you have an expectation for nonrecurring items for the next 3 quarters? That will be my question. And then if you have an amount, how much would it be?

I will go with the answers. In terms of Shipping, if I correctly understood the question, normally, the first quarter can account for almost 30% of the total performance of the year, so slightly higher than a proportional distribution, even something more. Normally, the second quarter is, anyway, a good one until, let's say, the end of May, beginning of June. Then we start the summer season. Summer season is lower in terms of loading factor. It's lower in terms of loading factor because the volumes of bananas imported are replaced with seasonal fruits, seasonal campaign. So all the fruits you can imagine to eat during summer between June and end of August, September. And then volumes come again, growing until the end of the year. So normally, we have a third quarter that is the lowest one in terms of profitability. First quarter and last quarter are the better -- are the best. And the second one is an average one. This year, we had some effect that I give you as a main explanation, just for your knowledge, is that the introduction of the IMO 2020 was a disruptive change for the sector. So we had, at the beginning, a price of the new gas line we use for the ships that was really high. Not really related to the real cost of the goods for the difficult -- there was in distribution of the product. So a lot of -- so the market was really high and we had a trend of growing, a growing trend. At the end of the day, so we had a positive effect on bunker side because due to our scheme of commercial close with the clients, if the bunker goes up, we're hedged in -- with the third parties. Obviously, with the captive one is in consolidation, the effect is plus on one side and a minus on the other side. But with the other clients, we have a slight advantage when the bunker grows. It's a little effect. On the other hand, so in the second quarter with the dramatic drop of the oil price, the product we use did not drop that much, obviously, because it is a refined one. But probably, the second quarter would be -- will have a little effect negative for the same reason why we had a positive effect in the first quarter. But we're not talking about big numbers. So I hope to give a good answer to your question. In terms of nonrecurring items, we have to highlight that the nonrecurring items of first quarter are related specifically to nonrecurring expense on personnel costs, specifically some litigation and let's say -- I call it litigation, but it was, let's say, the reassignment agreement with some people in France. And then some other costs all over the group, we are 1,500 people. Then we have some COVID cost. It's about EUR 110. And then some mix, there is very little amount of extraordinary cost all over the countries. For the next quarters, we do not see any big, let's say, nonrecurring cost. We will have something more about EUR 300,000, let's say, in the second quarter related to the COVID because, obviously, the first quarter, the COVID impacted in terms of cost, Italy at most. But then in April, even Spain and France and even the other countries were impacted. So we will have some cost in France as well and in Spain as well. Then we don't see any major cost that is not recurrent.

The next question is just a follow-up from Andrea Bonfa with Banca Akros.

Very quickly, it's just qualitative comment. How much does it weigh [ to risk ] consumption on your, let's say, third quarter, sales? If it's irrelevant or what are your thoughts about it?

Okay, Andrea. I will -- it's a right question, really difficult to answer. We had a long conversation yesterday, within the Board of Directors, we had about this point specifically. Actually, if I have to imagine, which is the country where we could have the biggest impact, it's Greece because, obviously, our company -- Greece, the amount of people going to Greece during summer is really high compared with the people living in Greece during the whole year. So -- and our company there is really strong on the core islands. So probably, we will have an impact there. Then we will have to see because, obviously, it's really difficult to say because the biggest impact is, let's say, July and August. On the other countries, we were talking yesterday with Carlos Fernández He was saying that, for example, normally, during summer, the sales of Hermanos Fernández registered a little slowdown. So what we see is that probably, if people in Italy, France and Spain, I'm talking about the largest market we have, will be having their holidays in their own country, probably we won't see an impact on sales. Because both France, Italy and Spain are countries with high population, and our companies are really strong in the -- in all the countries, in all the parts of the country. So I guess, and we really hope, that this effect will be absorbed by the switch of holiday destination. But to be true, Andrea, this is the best answer I can give you because it's too difficult.

[Operator Instructions] Mrs. Orsero, gentlemen, there are no more questions registered at this time. The floor is back to you for any closing comments.

Over to you, Raffaella.

. No, thank you, Paolo. Thank you, Paolo.

Okay. Since we have no more questions, thanks again for your attention, and we will talk again in 3 months from now at the end of the semester, and hopefully, cross our fingers, with no specific feedback on the COVID consequences. Thanks, again, to everybody, and see you in 3 months from now. Bye.

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