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 Half 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. Before we go in the details and the characteristics of the business, I will pass the word to Mrs. Raffaella Orsero and Matteo Colombini. Just want to state a couple of words as a backup on what -- which was the history of this year. As you can imagine, in October, November 2019, when we were planning the numbers for 2020, we could not imagine, since we are in the fresh food business and we are not Chinese, we cannot imagine what could happen in 2020. So our numbers were based on challenging objectives comparing with 2019. And most of the people are talking to us, they were asking us whether we could be confident to achieve these numbers in despite of what happened in 2019. So as you can imagine now how we are, in a way, satisfied and happy to present the numbers for the first 6 months, 6 months only, of course, not the full year. But it means that our business model is strong against this normal business circumstances and also even strong against exceptional circumstances. I think we are one of the two companies nowadays who can confirm or even improve the numbers planned for 2020. So having said that, with some participation, as you can imagine, I pass the word to Raffaella Orsero, Vice President of the company. She will give us a broad picture of the situation.

[Interpreted] Good morning, ladies and gentlemen. As Paolo was saying, we are satisfied with the results achieved, both in terms of revenues and also margins, profitability. While actually the pandemic has changed demand, very often many different times, and during the different months and also the different markets where we are active, however, thanks to the flexibility of our organizational model, we were always able to tackle the demand shift in the best way. Moreover, we achieved plus 5.7% in terms of revenues. And we consider this to be an excellent result. If you bear in mind that the countries where we're working are precisely those stats were mostly hit by the pandemic and also the lack of tourism. As far as margins are concerned, we can say that both the Distribution business unit, Import & Distribution and the Shipping segment, while both these BUs have contributed to the growth in margins for the next -- for the coming 6 months, we are confident that we can achieve and attain the results that we have set to ourselves. And then one last remark on the French market. Well, last year, actually, we're not very satisfied with the performance of this market. But now we are starting to reap the -- to harvest the fruits of our change in organization, and margins are good. It will not be, so to speak, run rate fully fledged year. However, the results achieved so far all goes well for the next year. And I'd now like to give the floor to Matteo Colombini, who will delve into numbers. Thank you.

Mr. Colombini, is your phone on mute.

Thank you. Good morning, everybody. It's Matteo Colombini speaking. I will go through some details regarding the first half results. In general terms, the company gave a great response to the difficult situation we face. We mobilized a crisis management team. We executed all new safety protocols all over Europe. We implemented remote working to, let's say, all the eligible workers in our organization. Obviously, our warehouse and operation were always on the field. We were able to secure procurement and maritime shipping and distribution chains were truly operational. We were really satisfied by how we were able to maintain a strong customer service given the fact that we experimented lockdowns all over the world in our origin countries with the limitation and constraints over the port activity, shipping activity and then obviously, the situation in our country for packing and distributing the fruit and vegetables. In terms of economic and financial action, we try to give a priority to our investment plan. But actually, we did not postpone nothing relevant to next year because all the investment we planned were either already made at the beginning of the year or it was correct to go over with the commitment we took because it was on the infrastructure, on the platforms and on our ships. We try to adjust the capital allocation, and we worked on the working capital management, both ways. In a way, we did not push too much with the working capital management action we planned because we didn't want to affect sales. On the other hand, we tried to save and control and take care about the credit collection that actually, for us, it is really, really important, specifically in Spain and Italy, where we have an exposure to the traditional channel. We had some costs related to the safety protocols for about EUR 0.6 million gross number because then we had some adjustment that we will see in details. And on the other hand, we had some savings related to the travel expenses, for example. But anyway, the number related to the COVID-19 in terms of pure cost is EUR 0.6 million in first half 2020. In terms of product mix, as my colleague said, we had a very good sales, particularly in our key markets, Italy, Spain and France, thanks to a positive price/mix effect. But even on the volume-wise, we are over last year, and this is a really important KPI for us. The -- obviously, we had a swing between the kinds of fruit and vegetable we trade. So the basic commodity were the bestseller over the period, over the difficult times. And we faced some difficulties on the high-end products like pineapples, avocados and fresh cut fruit, both for consumption reason and for, let's say, sales channel reason. Something that I want to highlight is that the results we delivered in the first half is not a result where everything was positive because of the demand. We have a few products, as we mentioned, where we faced strong lack of consumption or difficulties in terms of sales. So this is a weakness of the strength of our business model because this result is not an exceptional one, but it's a well-balanced result between good things and bad things that happened to us during the first half. Going to the numbers. Sales achieved almost EUR 500 million in '21 -- in the first half with a plus 5.7% or EUR 28 million, 4.1% at constant perimeter. The rest is the add-on of the M&A yield performed last year -- during the year. In terms of adjusted EBITDA, considering the reported numbers, so the impact of the IFRS 16, we are up by 22% or EUR 4.2 million compared with the EUR 19.3 million 2019. So we achieved EUR 23.5 million. Excluding the IFRS 16 effect, we're up about 31.3%. We achieved an EBITDA margin at 4.5%. That is actually a really good result, and we could say best-in-class result for the sector. The adjusted EBIT rose to about EUR 11 million, let's say, mainly but -- mostly due to the better operating performances. And the adjusted net profit stands at EUR 7.5 million. Then we have EUR 1.3 million of nonrecurring expenses, mainly related to COVID expenses that we mentioned before. So the reported number is EUR 6.2 million. Anyway, the progression of the net result compared with last year in the same half is really impressive. Total equity is equal to EUR 155 million. And net financial position stands at EUR 88 million. Net debt without considering the IFRS 16 liability or EUR 120 million -- including almost EUR 120 million, including IFRS 16 liabilities. Obviously, all covenants of structure that are fully respected with these numbers. If we go on commenting a bit the sales, we see that the 2 business units ended on good performances. Distribution, Imports & Distribution is up 5.4%. It's the biggest part of the revenues as we can see. And the progression in like-for-like. It's really okay, because it's 3.7%. As we said before, we had, within this number, some products with good sales momentum. But other products like Mexican avocados and banana and pineapples at green level, so at the importation level, that were impacted in terms of volume and sales by the pandemic. So overall, the result, it's important for us. Shipping improved by almost 17%. If you remember, the result in the first quarter, it was higher than that. This is pretty normal because the first 3 months of the year, normally -- actually, the first 4 months of the year are related to the highest loading factor for the whole years. But the performance is perfectly in line with our expectation, even in the second quarter. That actually was the quarter where we had the biggest risk operating-wise. Service and Holding revenues are not relevant, but slightly declining, but it's not really relevant in terms of impact on the whole result. Going to the EBITDA. We can see that at the end of the day, the performance of the EUR 4.6 million, there is a total change in terms of performance in profitability. The add-on of Import & Distribution and Shipping are pretty much on the same level, so EUR 2.7 million Import & Distribution; EUR 2.5 million, the Shipping activity. So the performance in terms of EBITDA, it's really good. Specifically, and I want to underline it for the last time, we have some problems with bananas and pineapples and Mexican avocados at the import stage even profitability-wise. If we go to the net profit, the consolidated net profit, we see that the biggest change in the numbers is the profitability. So we have EUR 4.6 million add-on, thanks to the EBITDA performance. EUR 1.5 million is the weight of the provision and G&A connected to the, let's say, massive investment made on the platform and infrastructure over the past 3 years. Then we have an add-on -- a positive add-on on financial and share of profit. This is mainly due to a positive effect on exchange rate differences that count for EUR 1.1 million out of the EUR 1.4 million derived with the share of profit of our consolidated company with equity method. We have an impact tax-wise. Obviously, the net result is higher. So we have something more in terms of taxes. So in terms of adjusted net profit, we passed from EUR 4 million last year to EUR 7.5 million this year. Or in terms of reported number, EUR 1.1 million last year to EUR 6.2 million this year, this quarter. Last number of our view is to the net equity variance. The total shareholder achieved EUR 155 million, mainly thanks to the net profit of the period that contributes for say, EUR 6.2 million. As you remember, we had an equity impact, negative this time, of EUR 2.4 million. That is slightly improved compared to the first quarter of 2020. The main items of this negative effect on the equity is EUR 0.2 million related to the share buyback, EUR 0.3 million related to mark-to-market change of hedging instruments on oil, oil there, let's say on, banker, oil derivatives; and minus EUR 1.5 million related to ForEx on net equity of non-Euro subsidiaries that are mainly related to the Mexican pesos devaluation. In May 2020, we remember it to clarify the numbers, we paid a dividend through the assignment of total of 246,298 treasury shares. The ratio was 1 share out of 69 shares detained by the shareholders, but this dividend had no effect on cash and net equity. Going to the net financial position variance. As we see, we wanted to highlight the cash flows without the net working capital effect. That actually is really important for 2 reasons: seasonality of the business in the first half of the year, and this is pretty normal, as you can see, by the historical track; on the other hand, we -- our growth was important and mainly related specifically over the first, let's say, between February and middle of May related to the retailers to the outright Distribution. That actually had, on average, a longer period, we have an exposure in terms of credit that is a bit higher. Then we recovered a bit in the last 2 months of the first half. So EUR 17.7 million cash flows, but the effect of the working capital is EUR 14 million negative. We have no concern about our liquidity position related to the working capital absorption of the first half because it normally goes in our bank account during summer and the first month of autumn. Operating CapEx, EUR 7.1 million related mainly to the -- that we finished, we completed the enlargement of the Verona warehouse, the main hub for Italian Distribution. And then we had some investments in Spain and France. Then we have the, let's say, the investment related to the property purchase that we already commented broadly through our communication and during the first quarter results. Buyback is, let's say, minimum effect. So we achieved EUR 88 million net financial position in the first half. It's a number that we -- it's in line with our expectation. IFRS 16 liabilities now counts for almost EUR 31 million. Just for our memories, last year, the effect was almost double, related to the fact that we did not own our properties, facilities in Italy, but we used to rent it by a related company. So the difference between the value of the investment of EUR 17.8 million that you see in our net financial position now excluding IFRS 16 compared with the EUR 31 million, EUR 32 million we had in our liabilities last year is the value, upfront value of the deal we made in the first part of the first quarter. I already commented the working capital evolution. But as you can see on Page 14 of our document, of our presentation for the result, the value of the absorption of this quarter is perfectly in line with the track record. So we don't see any particular concern about that. It's -- to me, I think we analyze the main figures. I will leave the rest of our time for a Q&A session.

[Operator Instructions] The first question is from Emanuele Gallazzi with Equita.

Two questions from my side. The first one is on the trading momentum. I was wondering when shall we pass an update the performance of both Import & Distribution and Shipping business in July and August.

I'm sorry, but I do not get. We -- the audio is really bad.

Okay. I'll try. Nothing may change this way. Can you hear me now?

Now it's better.

Okay. Okay. Sorry. Well, I have a couple of questions. And so the first one, as I was saying, is on the trading momentum. I was wondering if you can just share with us an update on the performance of both the Import & Distribution and Shipping business in July and August. The second one is on the net debt which, at least from my side, was one of the main positive surprise of the second quarter results and was largely explained by a good performance on net working capital. So I was wondering if you can just elaborate on the main driver of this improvement of the net working capital versus the first quarter '20? And considering the guidance, do you still see the net debt at the end of the year between EUR 105 million and EUR 110 million?

Okay. I start on the trading momentum. Actually, we can confirm that during the July and August, we did not have particular shift. And we were more or less in line with the performance of the first 6 months. Let's say that the revenues, the good news about the revenues is that all over Europe, so in our core countries, the performance of the Distribution company, let's say, in line with what we had in the first half. There's a little drop in the Mexican activity due to the avocado business. That is partially -- it's perfectly seasonal. On the other hand, there's a little drop in respect of what we expected, let's say, making our budget last year. But we are talking about, all in all, for Import & Distribution, a performance that is perfectly in line with our guidance. So -- and the good news is that the 2 main channels, let's say, retailers and wholesalers. Wholesalers, year-to-date end of August is in positive field compared with last year. So it means that we recovered all the negative effects we had in the first, let's say, 8, 10 weeks of the pandemian lockdowns. So this is really important, specifically for Spain and Italy. The impact of this channel is really low on Portugal and France. But Spain and Italy, it has a massive impact. So we can confirm that the trend is okay, with our estimation. The tourism effect was probably rebalanced by the internal consumption of the, let's say, the people stay in their country for the holidays. It's difficult to analyze deeply because it's more social than business. But at the end of the day, the numbers witness to us that the trend is in line. And in terms of the net financial position, actually, we did -- as I told you before, we did -- we planned some action on the working capital by the end of last year. And actually, we implemented just a portion of the action we plan because we did not want to affect the sales, specifically because we had a drop at the beginning of the lockdown on the wholesalers. So we just have, let's say, a big attention on credit collection, but we did not force clients to pay in advance with respect of last year. We made some action on retailers. It's a bit technical. But actually, I think we saved, in Italy, something between EUR 3 million and EUR 5 million liquidity with retailers. So to tell you the truth -- back then, as you may imagine, given to our business, the cutoff date is really important because it really depend -- you can move EUR 3 million, EUR 4 million easily depending on the calendar closing. So it's -- to me, it's a mix between the action made and probably a better calendar compared with last year. But all in all, we're talking about a number that -- the range, the number we achieved is the range we wanted to have in the first half. Now for the end of the year, we confirm the guidance. So the EUR 75 million is something that we can achieve. We won't be focused on that number. If we have opportunity to grow, we will give, let's say, power to our sales. So we confirm it, but we are not stuck on that number. Because actually, the import -- the really important ratio for us is the KPI, comparing the profitability with the net financial position and to be sure that we have no problem on covenants, and we still have some good space on our working capital credit line. So we won't be scared to have maybe EUR 3 million, EUR 5 million net financial position exceeding the number we forecast. It goes with a consistent growth of revenues and commercial strategy.

The next question is from Andrea Bonfa with Banca Akros.

Some of my questions have already been answered. I would like just to maybe ask you to expand maybe on the French market. It's clear that it's recovering. But if I'm -- if I got it correct, it's not yet the optimal profitability. So is it correct to assume that next year, you can further improve profitability from that market? If you can just elaborate on that. The second one is on the Shipping. It seems that the major recovery in profitability Shipping was in Q1. Shall we assume now steady cost for that division in H2 this year?

Andrea, starting from France, actually, Raffaella already explained the satisfaction on organizational-wise, so it means that numbers are coming. As we reported, we did not have a normal result in the first half of 2020. We knew it. And we are perfectly in line with the budget, with the plan there for this year. Let's say, we are in a halfway. Compared with last year, we have EUR 2.5 million better result in term of profitability. So it's a very good sign for us. For next year, we have to perform at least in line with what we used to do in France. What we are seeing over the past 3 months that we really put our hand on French activity deep inside, even with people from Italy and with, let's say, real support and team building with the new French team because actually as France is a new company in terms of people, at least the first -- the top management. Because France is a very good market. We already knew it, but it's a concern. It's a good market for us, and the company has a good -- still has a good position. So this year, we decided to -- not to push on volumes. We did not want to give strife to the organization and to the warehouses because we had to relaunch, let's say, the company. But things are going the right way. And next year, we have to be more aggressive and start to grow again, both in terms of revenues and profitability. To give you a KPI that I think is important, the last 4 months of profitability in France in terms of industrial margin is perfectly in line with the Italian performance. So we are on the right track. For the Shipping activity, it's really -- normally, let's say, the first half is, I'd say, the first quarter is the best one because you have a loading factor that is higher because it's the high season and -- for banana, specifically, end of April, let's say -- with the end of April, beginning of May. We had, on the other hand, an important drop in the pines volumes. As we had a drop in sales, we had a drop in the loading factor. We were able to rebalance it with bananas. So during the summer, let's say, July and August, normally is the tough period of the year for the ship because the loading factor goes down. We were able to make some commercial activity but, let's say, maintain more than decent loading factor compared with the normal period. So what we expect for the, let's say, this time for the last 3, 4 months of the year to have, let's say, a good track to be in line with our expectations. So even for the business unit, we were confident we can achieve our target.