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 Full Year 2020 Results Conference Call. [Operator Instructions] After the presentation, there will be an opportunity to ask questions. [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. Thank you for your attendance. First of all, I would be having -- I'm very happy and particularly proud of what my colleague had been able to achieve in 2020. As you know, in this terrible year, not many companies are showing these kind of numbers, so good by itself and much better than 2019. Raffaella and Matteo will tell you in a minute about the reality of our 2020. But before we do so, I just want to draw your attention on one strategic item. 5 years ago more or less, our company was based on a P&L driven mainly or at least 2/3 of it on our Shipping operation and only 1/3 on Distribution. Today, we can say we are exactly the other way around based on the fact that our shipping is much more stable and is a good profitability about it. Not only that, our distribution had outstanding growth in the last 5 years. So having said so, I pass the word to Raffaella to present the company. Thank you.

Good morning, everybody. The group has reported excellent results. We have overcome the target success for 2020 even in the context of COVID-19. Revenue grew 3.6% to EUR 1,041 million. The increase was due to the solid growth of distribution particularly in Italy, Spain and France and also due to the positive contribution of Shipping. Adjusted EBITDA above expectations, up 25% to EUR 48.40 million. This strong growth was due to the improvement of both business units. Import & Distribution has seen outstanding performance in Italy, good improvement in Spain and stronger recovery in France despite the margins in some products like pineapple and avocado exported to U.S.A. have suffered a lot because of the pandemic. Shipping has confirmed the trend that we have seen during the year with a significant margin increase thanks to a better freight rate and thanks to an average loading factor of 94%. Net profit stands at EUR 12.3 million with an Import increase compared to last year. Net financial position equal to EUR 103.3 million improved compared to December '19 thanks to an important cash generation. We are very satisfied, and we believe that these results show the solidity of our business model. The trend of the first 2 months of 2021 is in line with our expectation for Import & Distribution as well as Shipping despite the ongoing pandemic. In the same time, we are looking at possible acquisitions that can give us an upside to our growth plan. Now I will turn the call to Matteo to talk more in detail about financial results.

Thank you, Raffaella. Good morning, everybody. Raffaella already pointed out the main items that drove the results of 2020. I will go a little more in detail. Just a few words about the COVID-19 situation and how the company were able to grant the business continuity. We were able to grant the health and safety of our employees through the implementation of strong safety protocol, PPE, social distancing, thermal screening, barriers and sanitization. We invested almost EUR 1 million gross on these items, but I think it was the best investment we could have done because we had no business interruption all over Europe, neither in one warehouse where we pack and distribute our fruits. On the Shipping side, the procurement, our Shipping line, but even the procurement all over the world and all the distribution chain were fully operational. And we were able, at supply level, let's say, to keep a strong customer service despite all the different lockdown limitation we had all over Europe and all over the world. In terms of economic and financial actions. We focus on our working capital management. We were not able to do everything we wanted to do in order to absorb some of our net working capital during 2020 because we didn't want to push clients and to push our suppliers in a such complex arena. But I think we did a good job... [Technical Difficulty]

Please stay on the line. We are correcting a technical error. [Foreign Language]

Okay. We are sorry for the technical break. Going ahead with the market context, the Orsero business model was really solid both, let's say, in sales channel mix and core market response. In terms of product mix, we were able to maintain flat volumes in despite of situation where the wholesale channel -- sales channel, the traditional channel was really impacted specifically in the first part of the year. And we had a positive price effect not really driven by an inflection or not only but mainly driven to the repositioning of our bunch of goods sold on higher unit value items. As Mrs. Orsero said, we had some headwinds on pineapples, avocados exportation from Mexico to United States and fresh-cut fruit, whose consumption are more -- or is more linked to the out-of-home channel. Going to the main figures. Net sales for full year 2020 grow up to EUR 1,041.5 million plus almost EUR 36 million or 3.6% on 2019. The adjusted EBITDA is up by 25%, almost EUR 10 million, up to EUR 48.4 million compared with EUR 38.7 million last year. Better margin, let's say, across all the business units, and I just wanted to underline that the adjusted EBITDA excluding the IFRS effect is EUR 40.4 million and up to -- and up by EUR 11.5 million or almost 40% compared to last year. So let's say that excluding the accountability effect, the industrial margin evolution is even better than the reported one. Adjusted EBIT improved to about EUR 22.4 million as a consequence of improved operation -- operating performances. The adjusted net profit stands at EUR 14 million compared with EUR 5.3 million of last year; reported, 12.4 -- EUR 12.3 million. Total equity is equal to EUR 160 million. And net financial position, that is perfectly in line with the guidance, stands at EUR 74.4 million net debt excluding IFRS 16 effect or EUR 103.3 million including the IFRS 16 effect. So let's say, we can confirm strong financial ratios for the company. Going more in details on revenues and EBITDA by business unit. We must underline that the biggest part of our growth is driven by distribution, it's plus EUR 32 million or plus 3.4%, thanks to an excellent sales momentum across all European markets, with the exception, as we said, of the avocado exportation from Mexico to United States, and banana and pineapples importation. Shipping as well improved but mainly driven by the IMO 2020 go-live. So we have a higher cost in terms of fuel that we rebalance on our freight rates with our clients. So that's why the rates are growing that matches with revenues. Going to the adjusted EBITDA. The evolution of the performance is mainly connected to Import & Distribution, is almost EUR 7.5 million more compared with last year; and almost EUR 4 million, EUR 3.7 million, driven by Shipping. It's really important to underline that we had an outstanding performance of Distribution operation in Italy and a very good recovery in France. Actually, the overperformance we had compared with our guidance, it's totally due to France. Spain is always really okay. We just -- the only margin -- margin-wise, the only problem we had is the subdued margin on bananas and pineapples at import stage, specifically on pineapples for the out-of-home consumption problem, and Mexican avocados to United States for the same reason. The Shipping confirmed a solid performance and confirmed that the strategy we implemented over the past 2 years beginning 2019, including a fifth ship to, let's say, speed down all our system and to give more spare time to the scheduled time, was really key in achieving a more stable revenue path with no business interruption, with no port cancellation, with no, let's say, operational accident. On the other hand, this drove to, let's say, the possibility for the company to go to the market to our clients with a better offer in terms of service. So we were able to slightly increase our freight rate and to maintain a really excellent loading factor that stands at 94%. Going to the net profit bridge. Let's say most of the part of the variance is due to the adjusted EBITDA evolution, as we said, almost EUR 10 million. We have slightly higher D&A effect, EUR 200,000. EUR 1 million of better financial share of profit, it is mainly due to a positive exchange effect -- exchange rate effect of about EUR 0.7 million and lower interest of EUR 0.2 million due to the evolution of the reduction, let's say, of the gross debt. Obviously, we have a tax effect that is higher than last year because the profit before tax is really higher. And then we have 2 adjustments that we underline. One is the nonrecurring cost of full year 2020 almost EUR 1 million net of tax effect. And the other adjustment is the top management incentive plan that is built by EUR 800,000 of MBOs and EUR 277,000 of LTI plan. All in all, we can report a net profit of EUR 12.3 million and an adjusted one of EUR 14 million. Going to net equity and net financial position. On net equity-wise, the net equity is up from EUR 151 million to EUR 160 million. The evolution is mainly driven by the net profit 2020. Then we have some negative effects mainly due to exchange rate effect on the balance sheet dimension due to -- mainly due to the Mexico -- peso Mexicano exchange rate with euros, some mark-to-market hedging reserve for EUR 0.5 million and EUR 1 million due to buyback share. I just remember that in May 2020, we paid the dividend through the assignment of a total 250,000 -- almost 250,000 treasury share with no impact on cash and net equity. The group net financial position, as we said before, stands at EUR 74.4 million without IFRS effect. Driven by a strong and positive cash generation, that net of commercial net working capital is about EUR 29 million. This year, in 2020, as you know, we invested a lot, first of all, because in January 2020, we bought out, we purchased the 4 core instrumental properties in Italy by a related party, and we invested almost EUR 18 million. On the other hand, we had a strong investment plan that we decided not to stop considering the strategic vision we have for this investment. EUR 5 million of the EUR 18 million we invested, excluding the purchase of the 4 instrumental properties, were EUR 5 million due to the enlargement of the Verona warehouse. It is our main facility in Italy. And now it's really a modern and top-level distribution center. EUR 5 million of dry docking of 2 vessels, I just remember that dry docking -- we dry docked 2 vessels last year and the other 2 this year. And then we had to make a ballast water treatment equipment that is regulatory on the 4 vessels. So all in all, were EUR 5 million on our ships. EUR 2 million is related to the implementation of the new ERP for Italy. The project is almost done. We aim to go live by the end of the year. Other recurring CapEx of EUR 8 million, that basically is the maintaining of the Distribution European platforms. Net working capital evolution was broadly in line with the normal seasonal evolution. We will work in 2021 in order to optimize, when and if possible, our net working capital effect. Just last few words before giving you the Q&A time. Just to underline that over the past year, the company drove a lot in terms of revenues since the leasing in 2017. We changed a lot our business model because we put all the way, all the money, all the investment strictly on the core activities, so Distribution. And we work a lot in order to stabilize the Shipping activity that for us is not a separated business unit, but it's ancillary to the Distribution for bananas and pines. Still, we have room to grow specifically in France and Spain. France just recover and still have a lot to do in terms of revenues and profitability. Spain still have to cover some regions all over the country, so we have room there. In Italy, we have a really, really strong position. We are the first player for sure. And we are working on new projects to develop growth over the next years. Guidance. We just released the guidance for 2021. As Raffaella said, so far, so good. Our estimation seems to be in line with the actual evolution. We keep watching on a weekly basis the revenues; and on a monthly basis, margins. So I think we could catch up with more details about the guidance 2021 with the approval of the first quarter results. Thank you very much. And... [Technical Difficulty]

Excuse me just for a moment while we reconnect Mr. Colombini. Mr. Colombini, you are connected, sir. And if you'd like to begin the question-and-answer session, I'll give instructions.

Okay.

[Operator Instructions] The first question is from Mr. Michi Dario (sic) [ Dario Michi ] of Exane BNP Paribas.

The first one is an update on the current situation on the Shipping activity since it seems there is a shortage in containership and rates are going up. But this increase is not matching what is happening on the bunker side. So this is something similar to what happened in 2020 in which you were able to achieve a strong increase in margins despite the rates were not growing as much as the full cost. So what's the embedded contribution to the Shipping activity to 2021 guidance? And then you stated that the growth in 2020 was mainly driven by prices. So in 2021, inflation are to play a key role, and so what your assumption on this since the revenues are almost flattish year-on-year? And then you stated you are looking for M&A opportunities around. In what you are concentrating your scouting process, if I may, and the feel for the moment?

Thank you. I will start from the Shipping activity. As we said many times, we decided to keep a no-speculative approach on the Shipping activity. So what we do is to -- let's say, to contract on a yearly basis an important client base for the 52 weeks of the year, negotiating a freight rate that includes a bunker adjustment factor. That means basically that if the bunker goes up, the freight goes up. If the bunker goes down, the freight goes down in a more or less linear way. So in this way, we do not speculate and we do not expose the company, our clients and our investors to the fluctuation of the oil price. That is something that obviously you cannot control. You can hedge, but you cannot control. So given the fact we are seeing in this week some clients calling us to load, let's say, more volumes, and we could be in the position to speculate on that by saying we -- let's say, we have set more volumes, declining some specific client volume and increasing price for new stock clients. But this is not an industrial view, this is really a stock view, so we are not doing that. Actually, we're staying close to our clients. We are giving the best service because our service is there since 20 years, and we want to -- the service to be there for the next year with stability. So let's say that the approach we were having on the Shipping activity allows the company to avoid massive fluctuation, but it obviously is not permitting the company to take spot opportunities on profitability. So fuel-wise, on the third-party's activity that is 50% or less of our capacity, we have no impact of the fuel. Obviously, on our volumes directly exposed on fuel, we make some hedging strategy. But basically, we have to try to take the price increase on the market selling the fruits. Guidance 2021 is mainly in line -- broadly in line with the results of 2020 because what we see that more or less we achieved stability in freight rate, stability in client base and loading factor, so I think the dimension 2020 in terms of EBITDA is the target I mentioned for us to maintain. We don't look in speculating to gain a couple of millions, with the least then to lose EUR 5 million in the difficult year. So this is the strategy on Shipping. In terms of fruit prices, very difficult to say. I mean what we do, strategically speaking, is to invest and grow on the more added-value product. So we try to grow -- to give you an example, to grow more in avocados than in bananas. We want to grow more in exotic fruit or in kiwi than in bananas. But this is the industrial strategy, so to have an average higher selling prices overall through our products. Then to say the inflection of the same product compared with last year, it will really depend on the supply chain situation. Because this business basically on prices is, let's say, supply-driven, so really difficult to say. In these 2 months, 2.5 months, we're seeing an average price that is slightly higher compared with last year depending on the region or in line with like the others. But to tell you the truth, it's really difficult to forecast how will be the oranges' prices this summer. It will depend on the production. So M&A. We are now -- our, let's say, M&A view now, excluding, let's say, strategic deals that are not on the table now, we -- in terms of, let's say, dimension, our stand-alone strategy for M&A is basically driven by added-value products or niches, maintaining the position in our core countries. So we scout Italy, France and Spain mainly. And we scout niches that can be bio-organic or can be berries, anyway, niches where the company is operating but not in a really structured way; and where we see potential of double-digit growth in terms of revenues and consumption -- consumption and so revenues; and an EBITDA margin that is higher than our average at the moment. That is very good, but we are aiming something between 7% and 10% in terms of the EBITDA margin. This is more or less what we can say now.

The next question is from Andrea Bonfa of Banca Akros.

Matteo, part of my questions have been already answered, but I just, of course, would like to highlight the fact that your guidance is stable, let's say, compared with the last year in terms of profitability. And I recognize that 2020 profitability was very good, so of course, the comparison is difficult. Just to highlight, let's say, what are the potential upside in your guidance and what are eventually the potential downside in your, let's say, EUR 47 million, EUR 49 million guidance, if you can?

Okay. First of all, we -- our, let's say, guidance 2021, let's say, was built up before we released and we consolidate the 2020 figures. So it's based on -- really, it's a budget based on what we think we can do in 2021. Obviously, as you say -- as you saw last year for the guidance 2020, we were not shy in putting on the table some EUR 8 million, EUR 9 million of EBITDA increasing from 2020 -- 2019 and 2020. In the same way, we cannot decrease in 2021, but we cannot be bullish on the market situation given the fact that we live in this world and consumption is driven by, let's say, the money that people have in the pocket. So obviously, we play in a protected arena because fruit and vegetables is one of the basic, let's say, food for the people. But on the other hand, it's under everybody's eyes how the pandemic situation is affecting and will affect socially and economically the people all over Europe and all over the world. So obviously, we maintain, let's say, a balanced guidance considering that the view of the consumption is seen like likely decreasing in terms of volumes compared with 2019 -- 2020, I'm sorry. And so we maintain in our guidance more or less the same price level, increasing the volume. So the challenge is to beat the market situation and beat the market through our, let's say, strategy in our portfolio products, our service, our distribution capillarity. But on the other hand, we cannot dream in this situation that consumption will explode. Upside, as I told you, the guidance for us is fair. We never wanted to release budget or guidances with some headbanging. We think the guidance is fair. Upside, I don't know if it's 2021, but overall, upside can be for sure France. In France, still, can do so much better in terms of market share and revenues. And the company is going in this way. We are building up some new interesting projects and some M&A deal made this year to drive efficiency and some commercial synergies all over Europe as well. So let's say that the upside, in our view, for 2021, we hope we have some upside, but we're not talking about big numbers. And we -- I think the guidance is fair, as I said. The downside can be, in my opinion, just some, let's say, extraordinary item occurring during the year but not -- we cannot forecast this; or on the other hand, a worse consumption evolution compared with our feeling. This is basically what I can tell you about the guidance. So far, so good. We don't see any massive differences until now between what we forecasted and what is happening.

[Operator Instructions] We have a follow-up question from Mr. Dario Michi of Exane BNP Paribas.

Which is the incremental or decremental contribution of the Import activity to the adjusted EBITDA variance in Slide 11, please?

I'm sorry, but I didn't -- the Import & Distribution activity?

No, just the Import one.

Actually, we -- it's really difficult to say because our numbers is including the importation stage and the distribution stage because then the Import is considering as well the freight paid to the Shipping activity, so we have to see it all in all. If you want some elements, I don't want to be -- let's say, not to disclose number because I don't want to disclose the number just because I care about the market investors and analysts look at our numbers in the right way. To give you an example, when we talk about we saw lower profitability at import stage for bananas and pines, the count we make is that we compare the total value of the product pines and banana on all the value chain, so considering the cost we pay to the production; the cost the company pays to the shipping company, mainly to our shipping company and then even to third parties when occurring; and then the value that we are able to cash on the market every day selling the fruit. Given the fact that the full price of the fruit was not that, let's say, lower than what we expected, then the problem is even to the importation stage. To give you an example, it can be either in terms -- for pines, it's both a problem of import stage and a problem of final consumption in terms of volume. To give you one element, we -- all in all, in bananas and pines compared with a, let's say, regular year -- than regular year, it's difficult to define in bananas and pines. But we have a lack of between EUR 2 million and EUR 3 million profitability on both products mainly driven by pines, just to give you some elements you can consider.

The next question is from Roland Könen of Value-Holdings.

Congrats to your full year figures. I actually had 2 questions. The first question is on the -- yes, on the topic of collection from customers. So the paying behaviors of your customers, how does it evolve in 2020? And the second question is on the operating business in the last quarter, in Q4. If I calculate it right, the sales were down roughly 2%, and the EBITDA was roughly down EUR 1.2 million, EUR 1.3 million. So could you please elaborate about this topic?

Sure. In terms of the credit collection by customers, as we point out before, it was one of our key points beginning the pandemic situation specifically in Italy and Spain. Why? Because Italy and Spain are the 2 countries where our companies are more exposed to the traditional market, to call it in a simple way, wholesaler, HORECA and clients like this. Normally, so basically, we really care a lot about our credit collection in those 2 countries. But in 2020, we were really keen on the point. So what happened in 2020 is that, actually, we had lower credit loss compared with a normal year all in all, on one side, because the revenues on the retailers for the organized distribution were higher. So this is, for sure, a general effect. But on the other hand, because we were really keen on applying all our strict policy on our credit numbers. So I must say that trends in Portugal, where normally we have no credit losses during the year because more or less, the company is selling 80% -- 75%, 80% on retailers, so we have no massive problem, continued in the same way. Italy and Spain made a better performance including collection compared with the regular year. And this will drive for us future, let's say, thoughts about maintaining, let's say, our attitude we introduced in 2020 in order to maintain this advantage that obviously on our margin can be really important to save EUR 400,000 or EUR 500,000 in credit management. This is the first answer. In terms of the operating business, what you noticed is correct and it's mainly due to seasonality. In our business, it's not every -- okay. Our business seasonality cannot be perfectly good because it's linked to the production all over the world. And the production all over the world is linked to weather conditions and, let's just say, production year on or year off. You have some year where production is -- when the trees are producing a lot of fruits, and then year later, it's producing less fruits. So it's really difficult to find a strict rule. It's not industrial, but to give you a general situation, normally, we have 2 weak quarters, the first and the fourth. Normally, the first quarter on Distribution is the weaker. Then we have second and third quarter, let's say, the spring and summer season, where the volumes, the revenues and the margin are better. Then we go back in the -- let's say, in the last quarter, where we use a bit of product because specifically at importation stage, we live on bananas and pines and other products. So normally, the first quarter is the weaker in terms of Distribution; second and third, the strongest; and then we have the fourth that normally is not weak like the first one, but it's not strong like the central 2. But given the fact that specifically for times that the situation is difficult, this year, we had fourth quarter then on pines that we lost a bit of revenues. Actually, until beginning of December, situation was even -- let's say, was not that good in terms of consumption because the last -- let's say, the second wave of the pandemic situation gave to the people a different attitude or at least is what we noticed all over the market, so more rational, without going to the supermarkets buying a lot. But then in December, we recovered a very good Christmas campaign. So at the end of the day, this is the result. But our seasonality is the reason why you are noticing a difference in the quarters in terms of revenues and EBITDA.

So no special things to worry about if you compare Q4 2019 with Q4 2020?

I'm sorry?

No things we have to be worried about or think about in the comparison, as you said?

Okay.

Mr. Colombini, at this time, sir, there are no questions registered. Would you like to make some closing remarks?

No, thank you. Yes, if we have no more questions, thanks to everybody for the attention. We continue to work to deliver good and solid results, and we will keep updated in a couple of months with the first quarter approval. All the best.

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