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 2021 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 pass the word to Mrs. Raffaella Orsero, I just want to say a couple of things. As you know, 2021 has not been an easy year. Food consumption in general is -- in Europe, either flat or somewhat shrinking. And most of the retailers, traditional retailers in Europe are struggling to get numbers in volumes or revenues, really close to its 2020 numbers. So having said so, I must say that we should really proud of the results we achieved so far in the first semester 2021, especially as far as [ conservative ] margin. Now, I [Technical Difficulty] pass the word to Raffaella Orsero [Technical Difficulty].

Yes. The 6-month results show an overall stability in sales and a significant improvement in profitability. Net revenue slightly declined compared to the first half of last year. There is no concern about it. The reasons are simple and easy to understand. First, you may recall that last year, particularly in April and May, the impact in distribution was positively impacted by an important panic buying phenomena that we have not seen this spring where volumes and price were more standard. We faced a decrease -- and second, the second reason, we faced a decrease in the average dollar exchange rate, which led to a decrease of shipping revenue. The adjusted EBITDA equal to EUR 26.6 million show a significant increase with a record marginality of 5.2%. Overall, very good impact in distribution performance, mainly thanks to a mix of higher value-added products, good improvement on banana and pineapple at the import stage, while we faced lack of marginality, particularly on the second quarter on some basic products like apple and citrus, on which we had been able to speculate more last year because of the pandemic. The shipping has further improved this result compared to first half 2020, thanks to an excellent load factor, ships are almost fully loaded and operational efficiency. Finally, net profit for the period equal to EUR 8.2 million in strong growth compared to the same period of last year and the net financial position in further improvement due to a significant cash generation. I conclude. I pass the word to Matteo. We are confident for the achievement of the guidance at the end of 2021. But above all, we feel we have a solid basis to face a future investment, a growth opportunity that we are looking for. Matteo, can you start with the presentation?

Thank you, Raffaella. Good morning to everybody. I will go more detail with numbers. Raffaella already summarized basically what happened in general in the first 6 [ months ]. So net sales H1 2021 are slightly down to EUR 513.1 million, equal to a minus 1.5% versus H1 2020. It's really important to highlight that the variance of H1 2021 against H1 2019 before the pandemic has a very positive performance with a plus 4.1%. The variance is mainly driven by the decision we made last year, not to maintain the market share in bananas, specifically with great distribution of retailer tenders and mainly in some -- on some retailers in Italy and Portugal because the prices were too low and were impacting the profitability of the Group. So we strategically decided to lose some volume in banana, some commodity and to have the challenge to regain our overall market share through added value products. So this is the point about the different mix. Adjusted EBITDA is up by 13.1% or EUR 3.1 million to EUR 26.6 million. This -- the good performance is equal distributed in Import & Distribution and Shipping. And it's really important to highlight that the adjusted EBITDA, excluding the IFRS 16 effect is up almost to 17.4% or EUR 3.4 million. Adjusted EBIT improved by EUR 1.7 million to about EUR 12.6 million as a consequence of better operating performance. Basically, the difference between the added value and EBITDA and EBIT is related to a higher depreciation of the investment plan we made over the past 3 years. Adjusted net profit stands at EUR 8.6 million, very good results and perfectly in line with what we expect for the end of the year. Total equity is equal to EUR 166.3 million, and net -- including EUR 1.5 million mark-to-market effect related to the hedging instrument we have on bunker and dollar. Net financial position, excluding IFRS 16 is down to EUR 63 million with a very good cash generation or EUR 91.4 million, including IFRS 16 liabilities. If we go, let's say, to the sales, we had an excellent growth for Import & Distribution in France and Mexico, a positive performance related to sales in Spain and as we say lower sales in Italy, Portugal and Greece. Good sales for -- going to the product. Good sales for kiwi, avocados, stone fruits and table grapes, offset by declining basic products, especially banana but even apple/pear and citrus, mainly due in the case of citrus given by the calendar of the campaign, the importation [ counter ] season campaign of 2021 compared with 2020. Very good point is the recovery of a fresh-cut product line, both in sales and in margin. This is a very good news for us because actually, as you may remember, last year, we had some heavy headwind on our business plan on fresh-cut, but 2021 is recovering very, very well above our expectation. Shipping, industrially speaking, the shipping activity was really, really good, better than last year, but we were impacted both on revenues and slightly in profitability on a different exchange rate between euro and U.S. dollar because, obviously, all the revenues of the ships are denominated in dollars. So we have a slightly negative translation effect on sales and profitability. Loading factor is very, very good, and operationally speaking, the service is running very well. If we go to consolidated net profit, the difference between last year and this year first half is mainly related, as we say that -- by adjusted EBITDA and some more D&A related to the investment plan of the previous 2, 3 years. There's a difference in financial per share of profit that is totally related to the fact that, as you may remember, first half of 2020, we had a very positive exchange rate effects in Mexico between dollar and peso Mexicano, that accounted for almost EUR 600,000. And this year, we don't have it, was a one-off. So we lose this EUR 600,000 in the comparison. We -- there is no relevant adjustments in H1 2021 is EUR 400,000 of non-recurring expenses related, on one hand, on some COVID costs related to all the measures that still are all in place in all our warehouses and offices. And on the other hand, the share of products of profits related to France and Mexico for the employees for the good result. Obviously, it's a pro forma because we will count the final number by the end of the year. But it's the share of profit that by law is related, and we have to give as, let's say, as a bonus to the employee. If we go to net financial position, as we said, we had a very positive cash flow generation with operating CapEx. Cash flow generation that reached almost EUR 20 million. Operating CapEx for EUR 7.5 million. And then we -- obviously, we had the dividend paid to [ certain ] accounts for EUR 3.5 million. So excluding IFRS 16 liability, the net financial position is reduced by almost EUR 11.4 million. And then if we take in account IFRS 16 liability, the net financial position stands at EUR 91.4 million. Main effect talking about cash CapEx, so excluding the effect of IFRS 16 is the new warehouse in Tenerife, EUR 2.2 million, EUR 0.8 million related to expansion of Spanish distribution footprint, mainly in the south of Spain and other investments like EUR 700,000 on French warehouses in Paris and Cavaillon, EUR 0.5 million in new equipment for the fresh-cut equipment in Verona and some other small investments here and there in our platform all over Europe. But as we always do as a policy, all the investments are strictly related to core business. As we said, we paid a dividend of EUR 3.5 million in May. So let's say, the net financial position in terms of investment is perfectly in line with what we forecast in our guidance and budget. So still, we see our total investment by the end of the year with being EUR 10 million and is impacted by a very good cash generation, both because of an action plan on the working capital that was put in place already by the end of 2019, but then in 2020, we gave a break to it because the context was really difficult to handle. So we postponed a bit. And on the other hand, because having our revenue is not growing, at the end of the day, the effect of the working capital is not impacting the net financial position. Last thing about the guidance, Raffaella already confirmed our guidance. We decided to, let's say, maintain the main economic KPI. So revenue, the adjusted EBITDA, net profit and CapEx in line with what we declared in May. But in order to consider the lower net financial position, we decided to review our range net financial position passing by and net financial position between EUR 80 million and EUR 85 million; 2 a financial position between EUR 75 million and EUR 78 million by the end of the year. I think that's pretty much all, and I will leave the rest of the time for the Q&A session. Thank you.

[Operator Instructions] The first question is from Dario Michi with BNP Paribas.

The first one is on the guidance review in terms of debt, which is the underlying trends driving this review of the guidance. And if, as already anticipated in Q1, the net working capital played a key role in this, is the potential reduction in the net working capital is something we can assume as, not temporary and also replicable in the coming years? The second question is on the shipping activity. Have you already renegotiated your contract for 2022? I'm referring to the third-party services we are providing. And in this case, which are the incremental impact you expect from this review? My third question is on the fresh-cut. Could you please better detail the underlying trends in this segment, because the [ order story ] is still struggling? So where the demand is coming from? And lastly, in terms of product mix, you are reducing the weight of bananas and increasing other value-added products. Is this something we can assume as best portfolio for you? Or we can say, is this something due to persist in the coming years? I'm aware that the demand is driving the mix, but you decided to reduce the weight of bananas.

First, net financial position. We think that the, let's say, the positive effect is here to stay. It's going to be difficult to enlarge this effect and the dimension of the reduction, as you perfectly know, will be impacted by the trend of our revenues. But let's say, the COVID, we talked about that during our Board of Directors yesterday. The COVID, together with some very difficult lesson learned, helped us to be more balanced in handling the credit policies. So actually, I think now there's a better coordination between, let's say, IFC or administration, let's say, and commercial department. So at the end of the day, it's the new policy we set specifically in Italy and Spain, it's really, let's say, upgrading our capability to cash in our credit and to reduce the losses. This is made together with the insurance company. So I think we build up a new scheme that is capable to stay in the future. Second question regarding the shipping, it's a bit early to, let's say, to make a point because as you know, the renegotiation of the freight rate is something related to November, December. So it's not really the proper time to talk about it. Surely, the context that we feel in this moment, and it's not our feeling, it's the market, you can read it everywhere, is that the mood is like there's shortage in equipment. And so, the freight rates are supposed to grow next year, until which point difficult to say now, but if we have to say stable, up or down, we should say that the feeling now is up. Still we have no clue about the real numbers. So we will have this conversation probably in a couple of months. Fresh-cut, fresh-cut is a very good news because the consumption attitude between 2020 and 2021, first wave, second and third wave of COVID are completely different. And you can see by the reduction of the commodity products like Raffaella said before, apple/pears, citrus, banana somehow. And the great, let's say, growing some added volume products and the first one is fresh-cut, obviously, because it's one of the most expensive in our portfolio. Fresh-cut, we see fresh-cut growing by 40% from 2019, 2020 and 2021. That is actually more than recovering what we lost in 2020. Marginality or profitability of the business line is very good. So I think there's a good path. And still, we don't have all the good, let's say, impact of the out-of-home projects that the team is building up. So still, this is a performance related to retailers with some little things out-of-home, but still not even 20% of the full potential of what we should do out-of-home. We have a lot of projects. But obviously, we need, let's say, the normality to be back. For bananas, banana is more difficult to set a rule because we are a very important player in banana distribution in our markets. The point is that, when we go to retailer tenders, it's not really strategic. This is the reflection we made or not always strategic to be in, because it's not a real market share that you take because at the end of the day, the year later, they will do another tender. So you can have some situation where you want to be in because there's a geography that needs bananas to be profitable and to perform well. There are some areas that -- where you want to be in strategically because of the relation with the client or because you need to fulfill your warehouse. But in some other cases like we said before, this is not strategic. And if you go in this trend, then you lose money -- you increase your market share and you lose money. So it's not fair and it's nothing sale. So this is not a strategy to lose market share in bananas. It's just a strategy not to push when it's not profitable. So we should be with more market share next year because the prices allows us to sell more fruit or not depending on the market condition.

The next question is from Andrea Bonfa with Banca Akros.

Part of my question has been already answered. But I would like to have your opinion on a specific topic on the fruit production level, which apparently because of climatic, let's say, factors, the actual production of fruit is definitely low compared to the historical average. So what are the consequences in terms of your economics? If you can elaborate on that?

Andrea, actually, we had -- this summer, we had some specific products, some cases, for example, the pears in France, the production was really low and in Italy as well. But actually, we -- yes, you lose some volume on some specific projects or some origins, but you are able to recover with different products or different regions. So actually, for us, looking at the number, the figures even in July and August, just talking about revenues, volumes and prices, we are not suffering any relevant decrease or on the contrary, the trend is okay. Then as you remember, let's say, our core business used to be and still is the importation of the fruit. So the domestic -- when there's a lack of domestic production, obviously, you don't import the same category because it's not the season, but you can, let's say, fulfill your selling bunch with other products or, obviously, with other origins. So nothing massive to, let's say, to underline.

Okay. And if it's possible, if you can elaborate on your M&A pipeline? It's something that I'm sure you are looking at. Of course, you can mention anything specifically, but just to have an idea what we are looking for again? And what's the state-of-the-art there?

Okay. As Raffaella said before, we are looking at many targets. And we look at many targets. Actually, it's -- in this situation, we are -- it's pretty difficult to find the right -- it's always difficult to find the right deal to execute. But in this period, it is well-known, it's very difficult to find the right value. There's a bit of inflection in the valuation. And as an industrial player, not a financial player, we always taking, let's say, important consideration, the value we paid for a company. We perfectly know that you have upside and downside in running a company. There's an integration risk. There's a market risk. And above all, we don't buy a company to sell the company, again, in 3 years, making a cash-on-cash return. So it's a bit difficult to find the right target. We have a couple that we are looking at a decent stage, we were working on that. And we are still scouting our markets and new markets. At the proper -- in the proper moment, we will disclose, obviously, the details, and we will communicate to the market. Still, it's not the time. We are working hard on M&A. We are looking, as I said, a lot of size, but our -- let's say, in our mind is to pay, not to pay a cheap price, but to pay a fair price for what we buy. And until we don't find a good mix, it's better to save our resources and to wait for a good opportunity because overpaying acquisition is not a good strategy.

[Operator Instructions] Ms. Orsero, gentlemen, there are no more questions registered at this time.

Okay.

Okay. So thank you, everybody, for participating to the conference call. And we will be back here in a couple of months with the third quarter. So thank you, everybody, and goodbye.

Good-bye.

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